Remarks and a Question-and-Answer Session on the Program for Economic Recovery at a Breakfast for Newspaper and Television News Editors

February 19, 1981

The President. Those of you who haven't finished breakfast, go on eating, and I'll talk over you.

Welcome here. Delighted to have you all here this morning. Maybe some of you've noticed the helicopter was on the lawn in case my reception was somewhat different than it's been. [Laughter] You know, we're departing soon to make sure the west coast is still attached.

Again, as I say, we're pleased to have you here. We think that we can have a dialog instead of a monolog, and I'm going to, without any further remarks, introduce to you one of our Cabinet Secretaries who will introduce a couple of teammates, and then I will come back. And we will begin some question-and-answer which will be concluded with the gentleman you are about to meet.

And so, ladies and gentlemen, the Secretary of the Treasury, Don Regan.

Secretary Regan. Thank you, Mr. President.

Good morning, ladies and gentlemen. It's a pleasure to be here with you. I hope you are all as thrilled as I was last night in hearing the President's remarks. This program is really bold. It's innovative; it's new; it breaks with the past; and it is different. I think that it's going to be one of the most stimulating things that's ever happened to our economy. From the point of view of why we are being so abrupt in breaking with the past, is that we can no longer go on with what we have been doing. You take a look at what our economy has been doing and consider that for the last 2 years we've had the greatest rates of inflation since the Civil War. And we apparently were going to continue down that road unless there was a break, so we have decided to make it.

We're doing it, as you know, as the President explained last night, with a four-part program. The first part of that program are the spending cuts. The second part of the program are the tax cuts. The third part of the program is deregulation, getting the government off the back of people. And the fourth part of it consists of having a stable monetary growth.

Now, during the morning, Dave Stockman, Murray Weidenbaum, and I will be explaining to you the details of this package. I won't take any longer except to say that as part of my program -- that is, the tax part of it -- I am going up on the Hill this morning at 10 o'clock to start explaining it. I have another session with a different part of the Hill at 2 o'clock. I'm back up there again tomorrow at 10 o'clock. We'll be explaining this program, I hope not ad nauseum, but at least with a great deal of clarity so that you'll all understand it. And we feel that it's exactly what the American people have wanted. It's been designed that way. We're going to give it to them that way. We're going to fight with them in Congress.

You can use any analogy you want. This is the kick-off in football. This is the first inning of a baseball game. We're right at the start of what promises to be a great victory for the Reagan forces. And that's the program that we're going to be developing over the next few months, working with the Congress.

Thank you very much.

Now, I'd like to introduce my colleague and sidekick for these past 6 weeks, a man that's well known to most of you, David Stockman, the Director of the Office of Management and Budget.

Dave.

Mr. Stockman. Well, thank you very much, Don. And ladies and gentlemen, I would like to welcome you to the President's new White House breakfast program this morning, the one new program that we didn't announce last night. But what we hope that we're offering to you this morning is not only a breakfast but some food for thought.

And what I would suggest today is the plan that the President announced last night contains more new ideas, more new approaches to the fundamental economic problems of this country than we've seen in the last 15 or 20 years in Washington. And when you look at the economic mess that we have today, the way that inflation is eroding the ability of our economy to operate, the way in which tax rates continue to creep up and destroy incentives, destroy investment, destroy savings, it's pretty clear to me and I think it's pretty clear to the President that the kind of bold changes on the spending side, on the tax side, on the regulatory side that he proposed last night are precisely what this country needs.

I'm in charge of the budget side in particular. And although the papers this morning, at least some of them, have suggested that this $41 billion cut that we're requesting in the Federal budget for next year is too draconian, is too deep, I would just take this opportunity to remind you that even after all those changes are made, and even after the Congress adopts the 83 different proposals that we presented last night, we will still have a budget next year that is $40 billion higher than it is this year.

The basic problem for 2 or 3 years now has been simply that the Federal budget has been growing at an astronomical, unsustainable rate. It's increased at 16 percent a year since fiscal year '79. That's far faster than the growth of our tax base. It's far faster than the growth of our economy as a whole. As a result, we're taking a larger and larger share of the output of our economy at the government level. And that explains basically the economic deterioration that we've had. So, we're proposing to shift direction sharply, to hold the growth rate of Federal spending to 6 percent next year and in the years thereafter.

It will be difficult to do. But we have proposed to slay some sacred cows, if you will. We have proposed to reduce or eliminate programs that simply can't be justified under the current fiscal and economic crisis conditions that we face in this country. But I think we're going to get a favorable response from the American people, and I think we're going to get a favorable response from the Hill.

I happened to spend 4 years on the Hill as a Member of Congress. And I know that during those 4 years, every Member of Congress knew in his mind and his heart that things were going too far, that things were out of hand. Now we have a President who's willing to propose a program to turn that around. We have a President who I think can rally the support of this country. And I think you're going to find on Capitol Hill, despite all the cynicism that you hear from some, that we're going to get a great deal of support and that we're going to get this job done.

Thank you.

Oh, excuse me. It's my pleasure now to introduce the third member of our economic team, Murray Weidenbaum, who's Chairman of the Council of Economic Advisers. He's the guy in charge of integrating and pulling this whole program together and explaining it in a lucid and convincing way, something that he's fully capable of doing. So, I would like to introduce Murray Weidenbaum, Chairman of the CEA.

Mr. Weidenbaum. Ladies and gentlemen, I would like to emphasize just one key point. The Reagan program is a program for a healthier economy which will provide real, solid benefits to every American citizen. I will not concentrate on the medicine, so to speak -- the budget cuts, the regulatory restraint. I would like to emphasize the results, the positive results, in terms of bringing the inflation down by more than half, in terms of reducing the tax burden of every taxpayer, the creation of 3 million new jobs, all this between now and 1986 -- not a quick fix to be sure, but a constructive, balanced program which very frankly deserves the support, I think, of the American people.

And personally, it's a real pleasure to work for the number one economic communicator of our Nation, the President of the United States.

The President. Well, ladies and gentlemen, you obviously know that you are here because we beleive that the main source of strength in this fight is going to be the people themselves. And we believe also that they are ready to support a great change and go along. And you are in a position to help with this.

I've been hearing some of the voices already, when I was getting dressed, on some of the morning shows, from those who would be expected to be against this program in government. And I almost sense that one of their plans is going to be to not criticize the cuts at all, but to see if they can't wipe out the tax part of the program. This tax part of the program we have tried to stress, and this is one of the reasons why we've gone out of our way to point out to the people that it is not a reducing of the amount of money that government is going to get, it is reducing that increase.

We found in California when I was Governor there that -- and we had our great welfare reforms and all, and we had inherited a situation similiar to that of the Federal Government today. And during the campaign I was very frustrated when people would bring up and say, ``Well, yes, he talks about saving money in California, but look, the budgets went up and they went up to such and such a figure by the time he left office.'' What they didn't realize was of course the budgets are going to go up. There's growth, there's inflation, there's growth in government to match the increase in population and so forth. What they didn't realize though was that that slant of going up, we reduced by 20 percent. And if you do the same with the taxes and change the steep rise, today there's virtually a hundred billion dollars of tax increase built into the present system that will take place in this coming year if we do not reduce that increase.

But for years now the two lines have been diverging. Even steep as the taxes are, they don't keep up with the increase in spending. If we can bring the those lines to more parallel and what we are, believe me, hoping for and we know we can do, is have the tax line begin to converge with the spending line. And when you reach that point and then if you keep going, the tax line will be bringing in revenues greater than the increase in government, that is when you go foward with further tax cuts of the kind to correct the inequities that I mentioned in my remarks last night.

And I believe the people are ready. But I believe that there's going to be a lot of misinformation released in the fights that might go on. And yet, we're optimistic. We think that across the aisle, in Congress today, there is a different feeling and there are more people than anyone realizes who are of the opinion that this has to go forward.

Now, rather than go on with any kind of a monolog, and since my time is limited here, and possibly yours also, maybe we can open this up to discussion or questions from you. And if you throw me one that I can't answer, you can see I've got three specialists here that I'll call on.

Q. Mr. President, in your list of inflationary forces last night, why did you not mention the increase in gasoline prices and home heating fuels?

The President. Why in the list of inflationary forces did I not mention gasoline prices and home heating fuel prices? Well, I have to believe that to a certain extent, I know that that's an unusual situation, prices are not so much the cause of inflation -- price rises -- they're the result. And when I say there is something different in that one, yes. When the OPEC nations with the near monopoly power now take advantage of that position and just simply raise the price to suit themselves, that is a price over and above the normal response to inflation.

One economist pointed out a couple of years ago -- he didn't state this as a theory, but he just said it's something to look at -- when we started buying the oil over there, the OPEC nations, 10 barrels of oil were sold for the price of an ounce of gold. And the price was pegged to the American dollar. And we were about the only country left that still were on a gold standard. And then a few years went by, and we left the gold standard. And as this man suggested, if you looked at the recurrent price rises, were the OPEC nations raising the price of oil or were they simply following the same pattern of an ounce of gold, that as gold in this inflationary age kept going up, they weren't going to follow our paper money downhill? They stayed with the gold price. Of course, now, if we followed that, why, they should be coming down, because the price of gold's coming down. But I think that that's like the inflation-contributing factor that you'll have sometimes simply because of a poor crop. That is not based on the economy, that's simply supply and demand. And if there's a crop failure and you've got a bigger demand than you have supply, the price goes up.

But I believe that even those things can be dealt with with the other factors that we're going to follow, and that is trying to increase the energy supply in our own country. I think we can talk conservation all we want, but there's a limit that you get below which you cannot get maintaining your level of comfort and your level of industry. And I think the best answer, while conservation is worthy in itself, is to try to make us independent of outside sources to the greatest extent possible for our energy, and I believe that we have the possibilities of that. We're not energy poor. There's energy yet to be found and developed in this country, including the biggest coal pile that any country in the world sits on.

So, if I didn't mention that, it was because I didn't mention a number of other things of the same kind in there. I wanted to get through in 30 minutes before my audience walked out on me. [Laughter]

Q. Mr. President, in your remarks last night you mentioned that you envisioned reductions in spending in some social services, and not only as a reduction in expenditures but as improving the efficiency in social services -- [inaudible] -- rather interesting. I was wondering if you feel that by cutting expenditures you do improve efficiency -- the old theory that any job 10 men can do, 9 men can do, 8 men can do better -- is that part of your thought on the governmental operation?

The President. Well, in social services -- maybe part of my confidence in that and what we can do is based on what we did in California. We finally realized that all the savings we were making, all the economies, were all being eaten by welfare. And in good times and bad it bore no relation to the economy.

We saw that welfare in California was reaching a point of an increase of as much as 40,000 cases a month being added to the welfare rolls. We finally turned the task force loose to come back with a plan for reforming welfare. And we had a long fight. We could do the part administratively. We had two fights. We had a fight with our legislature to get some of it, because I had a hostile legislature at the time, and we had a fight with Washington, with the bureaucracy in HEW who had rules and regulations that for example -- and this is still true today -- that under those rules and regulations no one in the United States knows how many people are on welfare. They only know how many checks they're sending out, and then we turn up a woman in Chicago that's getting checks under 127 different names. And just recently in Pasadena, California, living in a lovely big home there, a woman was brought in and charged with collecting $300,000 in a welfare scheme.

Well, we set out to correct this. We finally got some waivers from HEW. We finally got the legislation, and again, we got it -- one of the biggest single things that happened to turn the public on our side in that fight came from your profession -- from the press. When a paper in San Francisco sent a reporter out to see if he could get on welfare -- to see if our stories of the horrors of welfare were true -- he got on welfare four times under four different names in the same office on the same day. And when he wrote that story, we had an ally.

When we finished our reforms, though -- we hadn't been able to give a cost-of-living increase to the welfare recipients in California because we were spread so thin, this is 1958 -- we saved over a 3-year period, because the welfare reforms went in only in my last 3 years -- we saved $2 billion for the California tax-payers in the program. The rolls were reduced by more than 350,000 people without us actually throwing anyone off. They just disappeared, and over and above that we had enough to increase the welfare grants to the deserving needy who remained by an average of 43 percent.

And when I say we didn't throw anyone off, we got permission that in 35 of our 58 counties, we could require able-bodied welfare recipients to work -- to come and report for useful community projects -- all of which we'd screened from school boards, from counties, from cities and towns, to make sure there were no boondoggles. And they had to report -- they only had to work 20, not 40 hours a week; the other half was to be spent either in job training or looking for work. And then we assigned what we called job agents from our labor department to each group of these people and told these job agents their job was to look at these people doing these jobs and see how quickly they could get them out into private enterprise. And in the midst of the '73 and '74 recession, when unemployment was increasing in the nation, they funneled 76,000 welfare recipients through this program into private enterprise jobs -- and free of welfare from there on out.

And we believe that this is what's going to happen, because we're very much determined to turn as much of welfare management as we can back to the States -- give them the Federal revenue share, but more in the nature of a block grant, and give them the right to require able-bodied recipients to work and give them the right to administer this program without this layer of bureaucracy in Washington on top of it. And so, we think we're going to benefit rather than hurt the people that are getting these grants.

Q. Mr. President, is there any way you can get the Congress to vote this entire program up or down, or are you going to have to go program by program by program and get them to vote on each one?

The President. We're introducing five pieces of legislation. One will be the tax bill; the other one will be a reconciliation act -- that will be one of the toughest ones -- that is, to try and get them to simply submit the program to the major committees and not break it all up into fragments and fragment it out with all the subcommittees. Then there will be the rescissions for 1981. We didn't mention that last night, but our cuts have begun with the remainder of 1981, which has been going on since October 1st -- this budget. We're going to make several billions of dollars of savings before the year is out in that program. That will take rescissions that have to be passed by Congress. And then, of course, the cuts in the 1982 budget which has been submitted by the previous administration. And that's the one where we're hoping to reduce $41.4 billion with our cuts.

So, that's as much as we could package it. We've emphasized and I've been meeting with legislative leaders from both sides of the aisle. We're going to continue to do that, urging them both to expedite this, but also to hold it together.

One of the reasons that we didn't add in any of the tax features that I mentioned later, as coming later on, is because we thought if we opened that door, then everyone with an idea might, and then would, begin to pick at the program with amendments and so forth. And we hope that they will just simply get the basic program passed. I believe, as I said earlier, that one of the things we must be most aware of will be the attempt -- no one will want to stand up and oppose the cuts in today's climate, but they will then say, ``Well, the tax part of it won't work.'' And we're sure it will.

Q. Mr. President, you said last night that your spending cuts and tax cuts would go in lockstep. What do you mean exactly by that? Do you mean that you won't sign tax cuts without the spending cuts you want?

The President. Now, now, wait a minute. I didn't -- --

Q. You said last night you wanted your tax cuts and spending cuts to go in lockstep.

The President. Yes.

Q. What exactly did you mean by that? Will you not sign the tax cuts unless you get the spending cuts you want?

The President. Well now, that's a problem I'm going to have to face. And I had a rule I'll fall back on in California as Governor: I never talk about whether I'll sign or veto until whatever is there is before me on my desk. But the two must go together if we're to have the stimulant to the economy, because the main purpose of this is really to get the economy moving again. And to do that, we've seen the percentage of gross national product that the Federal Government is taking in taxes going up consistently. And if you go back to where it was hovering below 20 and down around anywhere from 17\1/2\ to 19 over the years. we didn't have inflation; we didn't have the problems we're having today. But we're on our way up to almost a fourth of the gross national product taken by government in taxes, and this is what we feel has to come down if the economy is to go forward. And of course, to do that, we've got to make -- if we're going to cure inflation, which I believe stems in the main from government spending more than it takes in, we're going to have to bring government down to match the revenues.

Q. Mr. President, many people in Congress believe in the tax cuts -- I mean, the budget cuts, but are very concerned about the tax cuts. They fear it will be inflationary. How do you plan to combat that fear among Congress?

The President. Well, I mentioned that last night, this fear that the tax cuts would be inflationary. First of all, a number of fine economists like Murray Weidenbaum and many of his associates don't think that that's so. But also we've got history on our side. Every major tax cut that has been made in this century in our country has resulted in even the government getting more revenue than it did before, because the base of the economy is so broadened by doing it.

We only have to look at the last few experiences with cuts in the capital gains tax, and you find that the very next year after the rate was lowered, the government got more revenue from capital gains tax than it's been getting at the higher rate. What happens? People up there who are now worried about and busying themselves with tax shelters, if it becomes profitable to move out into risk-taking adventure and investments, they then are encouraged to move out and into that.

Back when Calvin Coolidge cut the taxes across the board, and more than once, the government's revenues increased. When Jack Kennedy did it in the 2-year program and his economic advisers, they were all telling him -- I can remember the figures -- they told him that the government would lose $83 billion in revenue, and the government gained $54 billion in revenue, I think is the figure, that it actually went up. So, they had made quite a sizeable financial error in their estimates. Jack Kennedy's line about it was, ``a rising tide lifts all boats.'' And this is what we believe that the tax proposals that we've made, what they're aimed at.

Business and industry in America today is investing the lowest percentage of any of the industrial nations in improvement in plant and equipment. We have the highest percentage of outmoded industrial plant and equipment of all the industrial nations. One of the reasons is the lack of capital. The government is competing in the private capital market to fund the government's deficits. The American people are saving at a lower percentage than the workers are in Japan, West Germany, and the other industrial nations, and that money that once went into savings accounts or insurance, as we all know it then, became a part of the capital pool that was reinvested by banks and insurance companies out in the free enterprise sector. And you could cite all sorts of figures of the increase in investment in tax-free municipal bonds and the reduction in industrial stocks that have taken place in America.

So, all of this is aimed, not at being inflationary, but the other way. And we're just convinced that what has happened before, every time, is going to happen again.

Q. Mr. President, the AFL-CIO meeting in Miami this week substantially opposes your program. I wonder if you consider this a serious impediment, and if so, how will you address it?

The President. Well, I can't say that I didn't expect it. I thought it was interesting that they kind of took a stand against it before they heard what it was. Now, whether they'll be converted or convinced by the things that they will now be able to understand or know about the program, I wish they would treat it with more of an open mind.

I happen to believe that sometimes they're out of step with their own rank and file. They certainly were in the last election. [Laughter] But I was a president of my own union once, an AFL-CIO union, and I think I know something about them. And it is true that they philosophically have tended for a number of years now to support the idea of government spending being good for the economy.

I remember once that as a union president representing not only my own but 32 other unions in the motion picture industry and management, I came to Washington to appear before the House Ways and Means Committee in support of a tax reform program that had been introduced. I was met by two of the lobbyists for the AFL-CIO and shown a rather sizable book labeled ``The Tax Policy for the AFL-CIO'' for that year, and it was completely the opposite of what I was here to say on behalf of those local unions that were all part of that organization. They frankly stated that the tax policy they favored would get the government $12 billion in additional revenue, and they wanted it to get that revenue because they had $12 billion worth of social welfare programs that they wanted the government to adopt.

Listen, I've been leaning to the right all the time -- there must be people over here to the -- -- [laughter].

Q. Mr. President, in cutting back Government support of the Synthetic Fuel Development Corporation [U.S. Synthetic Fuels Corporation], you express confidence that private enterprise will pick up that slack and do the job. In view of their failure to do so in the past, the energy companies' failure, what makes you think they'll do it here?

The President. Well, because if it's going to be done, they'll have to do it. Maybe they haven't done it in the past because there was so much promise of government standing there ready to do it. And you know, not that the giant companies are poor, but I keep remembering what Milton Friedman once said,``If you start paying people to be poor, there's going to be a lot of poor people.'' And maybe the same thing was true of business, that human nature is the same in the board room as it is down there on the street.

But I think that with the price of fuel where it is -- let me be practical about them and fair to them also -- there was no incentive before, because what we were talking about, synthetic fuels, were going to be more costly than the natural fuels that we were using. Now with the price up where it is, there is an incentive for them to look at these because they may be cost-effective. They may even be cost-advantageous over fossil fuels. So, I believe that there is.

I've always preferred that if there is some stimulant in addition that is needed, I believe the tax incentives are a better route than outright subsidy.

Q. Mr. President, I believe last night you said that the spending cuts are the largest ever proposed. Are these the largest tax cuts ever proposed?

The President. Hmm. You know something? That's a question -- I just looked over here, and I got a cue. Yes, Don Regan tells me they are. And that's fitting, because the tax increase that was adopted in the last year and that is built into the present system is the largest single tax increase in our Nation's history. So, we might as well match it with the largest single tax cut in our history.

I know that I've come to the end of my time and hear that helicopter take off pretty quickly, but don't think your questions won't be answered here. I am now going to get my trio back up here, and they will take your questions. And I think they'll be able to give you more indepth on anything that you might want to know about the program that we've been putting together.

So, Don Regan and Murray, Dave Stockman, it's your turn to come back up here and take the questions from these ladies and gentlemen. And if you'll forgive me, I am a few minutes late, and I'm going to have to run now. Now you can get down to the really deep questions with all of them. [Laughter]

Come on Dave, Murray, Don.

Note: The President spoke at 9:02 a.m. in the East Room at the White House.