Interview With Local Reporters in Bloomington, Minnesota, on Budget Issues and the Federalism Initiative

February 8, 1982

Mr. Beckmann. Mr. President, welcome to Minneapolis/St. Paul, to Minnesota -- --

The President. Thank you. Pleased to be here.

Mr. Beckmann. -- -- and to the airwaves of WCCO. We're very grateful you'd take the time.

Mr. Moore. Mr. President, the figure of $92 billion is an unfathomable figure. It's almost inperceivable to us. We do know that to satisfy the deficit, to meet that deficit, the government's going to have to borrow. That's going to necessarily take away some borrowing availability of the newlywed looking for money to borrow for a home, for an automobile.

You've asked the people to tough it out, to be patient on this kind of thing. How long would you expect the newly married couple to be patient? And I realize I've reduced this to a simplistic term, but can you regard the question in that light, sir?

The President. I think they ought to -- they started getting impatient quite some time ago -- --

Mr. Moore. Yes, indeed.

The President. -- -- Because this is not new, what has been happening to us. This has been the result of policies that were deliberately instituted sometime ago with a belief that they could control inflation.

Mr. Moore. But how much longer, sir, can they wait?

The President. All right. All we're asking is -- you know, the doctor just got here. And we've just begun to apply the medicine.

Mr. Moore. But Mr. Stockman has said that it'll be at least 1987 or through 1987 before the budget can be balanced.

The President. All right. But at the same time there's this difference -- that with our tax cuts and the increase in savings, which has already begun, you know -- it doesn't take much more than a 1- or 2-percent increase in savings to add billions and billions of dollars to the capital pool. The person that either buys an insurance policy or puts the money in a bank, in a savings account -- that money is subsequently loaned, then, by the banks or the insurance companies, invested in industry, in growth, in mortgages, and so forth. And so, you have a pool of money that can probably handle the government borrowing as well as the rest.

But just to finish up on the answer is this: Those people who were advocating a tax increase as a method of trying to hold down the deficit -- and remember, it never has -- in all the years past we've had nothing but tax increases and the deficits, and the deficits grew bigger. What is the difference whether the government has to borrow the money from the people and take it out of private circulation, or take it out of circulation by taxes? Either way, the people are without the money.

Mr. Moore. Are you counting, sir, on the people to use that 10 percent to put into IRA's and other protective securities, and not spend the money?

The President. We already -- some will spend it. There will be people who have long unmet needs. But we know also -- and much earlier than we thought -- remember that -- and the present recession might have been mitigated greatly had we gotten what we originally asked for. We wanted a 10-percent cut in the income tax, retroactive to a year ago January. We finally -- to compromise, to get the bill at all, we finally had to cut to 5 percent instead of 10 in the first year. And then we retreated to July instead of the last January, and finally to October 1st.

So, for 1941 [1981] our tax cut has only amounted to 1\1/4\ percent. And yet even with that, and even with only these 4 months now since October, there is an increase in the rate of savings, and we've been -- probably the lowest rate of almost all of the industrial countries in that.

Mr. Beckmann. Mr. President, a question about the current budget as it relates to your new federalism. There were the cuts or savings in domestic spending last year and more in your new budget proposal. And last year there was a safety net, programs that would protect the truly needy, and now more cuts or savings. Obviously, last year's safety net is different from this year's safety net. Where is that safety net now, and ultimately, in your new federalism plan, will it be the province of the States to establish that safety net?

The President. No, the Federal Government, I think, will be responsible for the standards, the basic standards. But the federalism program, which would be phased in over an 8-year period -- and this is one of the reasons I'm out in the country right now -- we proposed a conceptual framework. That has to be fleshed out with specifics as to how it's going to operate. We are consulting with mayors, with Governors, with State legislators, with county executives all over the country for their help. We're not just saying, ``Here's a plan. Take a look at it. Do you like it?'' And we're getting their input as to how we can phase these more than 40 programs over to State and local control -- a mandatory pass-through of those programs where the money should go on through to local governments, not just to the State level.

And we believe that the savings will be tremendous, because trying to run these programs from the Federal level -- and the Federal Government is never equipped to do that; the Constitution even provides against it -- the Federal Government has tried to make rules and regulations that will fit Wyoming and Montana and Los Angeles and New York City, not recognizing the great diversity of this country. They also -- and I say this as a Governor who for 8 years was implementing programs under the Federal regulations -- they with their redtape and with their regulations they impose extravagance on you. They so dictate the spending of every dollar that you have no leeway to say, ``Well, this is a higher priority in this area, in this other program. We should be doing more of this and less of this.'' You had no right to do that. You had to spend the money the way they told you to spend it.

Mr. Beckmann. The safety net, though, the one that became so famous -- --

The President. Yes.

Mr. Beckmann. -- -- last year, and now with the additional cuts in your present budget, the safety net this year is something different than what it was last year. Is that accurate?

The President. No. And last year we promised that there had to be some $70 billion more in cuts over the next couple of years, and this is one of the couple of years coming up -- '83.

No, we're going to take care of the people who really must be helped and who have real need. What we are trying to do is give those who are administering the programs the freedom to get rid of programs that don't work or at the same time get rid of people who actually under the technical rules may be eligible but who do not have the need that justifies their being there.

Mr. Moore. Mr. President, maybe I revert to my original question. How long would you expect the unemployed schoolteacher, of whom there will be about 8,000 in Minnesota, how long would you expect them to wait? How long can their patience go?

The President. Well, unfortunately -- and as one who lived through of the Great Depression, in fact entered the work force at the depths of the Great Depression as I did, there's no one who feels more deeply than I do about the tragedy of unemployment. But I also, I hate to say this, with them listening, if you look back over the recessions, that the policies that we've known for the last few decades have brought us the '70 depression [recession], the 1974 depression [recession], and the one that we had that began in '79, this one. Unemployment is the last to come back. It is the slowest in coming back. But I believe that under our program we're going to begin to see an economic turn along about the late spring or early summer.

Mr. Moore. Sir, how would you expect industry to absorb these -- and I'm talking about the unemployed middle class; I'm talking about the white-collar worker, the professional careers, the schoolteacher -- how would you expect industry to absorb that great number?

The President. Well, for one reason, we're only operating at about 70 percent of capacity now. When our economy expands to full production, a great many of our unemployed are people who have been laid off now -- plants that are standing there idle.

Mr. Moore. Sir, how is the economy going to expand when the interest rates go up and companies don't expand to take on these people?

The President. But we think the interest rates are going to continue going down. There may be some fluctuation as there has been in the last few weeks -- as there always is at the time of a recession -- coming out of a recession. But remember, the interest rates were going up before we got here. The interest rates have started going down after we got here, and we think they're going to continue to go down.

Mr. Moore. When would you expect to see the first signs of recovery, the first hint?

The President. Well, I think we've seen a few indicators right now.

Mr. Moore. But with -- --

The President. Not in unemployment, because I believe that's even going to get worse for a little while. But I would say that along about midyear and along about the spring, early summer, we're going to see a turn -- and an upward turn in the economy.

Mr. Moore. Even though the budget has been projected into 1987 by Mr. Stockman, the deficit, that is, would not begin to show a recovery, the budget itself.

The President. Because Mr. Stockman and I and all the others in the administration, by law, are forced to project deficits out 5 years in advance. I will tell you now I don't believe anyone can. I don't believe in those. There are so many imponderables that we have complied with the law, but I will tell you that I did it knowing we don't know what we're talking about, nor does anyone else who tells you they're projecting deficits 5 years in advance.

Mr. Beckmann. Mr. President, let's go back to your new federalism plan and how it's going to affect the States. As you obviously are aware, Minnesota is one of those States which does not enjoy a good financial picture right now.

The President. I know.

Mr. Beckmann. The legislature has recently patched up a 700-million-plus deficit. With the shift of government programs to the States, even with the trust fund, which you mentioned, it's going to have a strong and a heavy impact on States like Minnesota and the other north -- --

The President. Not really.

Mr. Beckmann. -- States.

The President. There are going to be no winners and no losers in this. We're going to transfer the funds that are necessary to perform the programs. And the trade that we proposed, of the Federal Government taking Medicaid and in return them taking food stamps and the Aid to Dependent Children, was because the increase, annual increase in spending on Medicaid is several times greater than the increase in those other programs. So, the Federal Government, by taking that program on, is going to relieve the States of an increased burden that will begin to be reflected in them having more of their own tax revenues as well as what we give them than they would have had, had they continued participating in Medicaid.

Mr. Beckmann. Some members of your party don't agree with those numbers, thinking that the 28 really may not be enough. Obviously -- --

Mr. Moore. Well, the congressional leaders among your own party, sir, have expressed pessimism about this. I believe Senator Dole, the chairman of the Finance Committee, himself said that the figures are totally unacceptable. How do you expect to win congressional support -- --

The President. Well, I don't think they fully understand yet.

Now, we have been meeting already with Governors, mayors, and so forth, as I've told you. And those we've met with, their joy is expressed that this is something that for 30 years they've been begging for. This was something that Franklin Delano Roosevelt in 1932 spoke of and said we must return to the States and local communities authority and autonomy that has been unjustly seized with the Federal Government, and I have -- the mail that has come in to me from State legislators is unbelievable in their joy. I will be addressing the Iowa State Legislature tomorrow and the Indiana State Legislature later in the same day.

Mr. Moore. You're expecting to win strong congressional support shortly?

The President. Yes. Yes, although I must tell you this: There are Members of Congress who resist giving up authority and power, and this, you must realize, this is just because it's the nature of a national government. No government in history has ever voluntarily reduced itself in size. And that's what we're going to do to the Federal Government.

Mr. Beckmann. Mr. President, thank you very much.

The President. Well, thank you. Wish we had more time.

Note: The interview began at 6:08 p.m. in the Las Vegas Room at the Carleton Dinner Theater.

The President was interviewed by Curtis Beckmann of WCCO - AM and Dave Moore of WCCO - TV.