So, good afternoon and welcome. We're delighted to have you here. I know, as I say, that you've been briefed, and I'll try not to plow the same ground twice and then, after lunch, questions. But first let me just say the United States has and will continue to do everything possible to help head off hostilities between Great Britain and Argentina. We believe a war would not only be tragic for both sides but dangerous for world peace, and we won't falter in our efforts to help prevent that.

We're also working for a budget compromise that doesn't alter or weaken the focus of our economic program. As you know, there've been intensive bipartisan talks over the last several weeks between representatives of the Congress and the White House over the budget. And I'm following those talks with certain amount of interest. They are approaching a climactic stage, and I want to express today my strong hope that they succeed.

We've tried to approach the undertaking in a constructive and conciliatory spirit. We'll continue to do so in the days ahead. It's not just the Congress. It's not just the White House. It's the country as a whole -- millions upon millions of hard-working Americans who need a sound budget. And we must join together to bring down deficits, bring down interest rates, and revive the economy.

I think our program, which is barely 6 months old, goes to the heart of the most deeply ingrained economic problem, that we inherited. Government has been spending and taking too great a percentage of the gross national product for itself. It's been like a ball and chain on economic growth, with taxes so high that personal savings in America have been the lowest of all of the industrial states. So, we haven't had the capital pool we need to fund spending by government and make capital available for home mortgages, for business investment, and so forth.

Far from helping us to balance the budget, high taxes fueled increases in spending that reached 17 percent in 1980 alone. You know, I keep asking one question that still hasn't been asked. If higher taxes are needed to reduce deficits, why did a $300 billion tax increase between 1976 and 1981 leave us with $318 billion in deficits?

The one sure way to reduce projected deficits, bring down interest rates, and still encourage growth is to reduce government's share of the gross national product. In other words, reduce the increase in both government spending and taxing. We must shrink Uncle Sam's appetite for credit without preventing the taxpayers from producing and saving more to get our economy moving again.

We're starting to do this. We haven't cut spending in absolute terms; we've just cut that 17-percent spending growth of 1980 nearly in half, but we're still increasing spending. We reduced tax rates by 5 percent last October, but that was too little and too late to offset a personal tax increase of $41 billion last year, which helped drag the economy down and make the recession worse. It's ironic to hear the same people who insisted our tax program be administered in drops rather than spoonfuls now saying the medicine evidently didn't work. Well, the medicine will work when the patient finally begins to get it, and the first real dose begins with the 10-percent tax cut in July, followed by an additional 10-percent tax cut a year later.

Tampering with the third year of the tax cut or saying, ``All right, we'll keep that third year, but then we'll increase taxes again in the fourth year and every year after that,'' would inflict major damage on the economy. It would increase the tax bill of families by hundreds of dollars and prevent us from achieving the $260 billion increase in private savings that our tax program is designed to bring about and that we expect by 1984. And it would further weaken the competitive position of U.S. products in the world economy.

We hear so many judgments made about compassion -- who has it and who hasn't. Our administration, I think, has compassion for those in need, but where was the compassion in those bankrupt spending policies that brought the pain of high inflation and interest rates to so many people? Where's the compassion now in raising tax rates again on our people, making it even harder for them to work and compete? For all the talk about our so-called massive tax cut, it will barely offset tax increases that were already built into the system, including the social security tax increases that were passed in 1977. Another installment on that increase went into effect last January, and there are more to come in the years ahead. And they will end up with a great percentage of our working people paying more tax in social security than they are paying in income tax.

Another point -- our tax cut is said by some to favor the rich. Well, that simply isn't true. 74 percent of the tax savings goes to the lower and middle class, who presently are paying 72 percent of the tax. The old system of pushing everyone into higher tax brackets only chased the wealthy into tax shelters and encouraged the growth of the underground economy. By reducing tax rates, we provide incentives to get more Americans back in the mainstream paying taxes again. And we're thinking about having some people going around to encourage them to do that.

Sometimes a poll will ask, ``Would you give up the third year of your tax cut if it would help reduce the deficit?''

Well, that's not a fair yes or no question. It suggests that higher taxes automatically reduce deficits, and, as I've said, history proves otherwise.

When people are permitted to choose between Federal spending cuts or increasing taxes to reduce projected deficits, a big majority, 77 percent in the most recent NBC/AP poll, invariably choose spending cuts. I think the people are sending a message of common sense if we'll just listen. They're asking their government to have enough courage to bring Federal spending under control, not just for a quick fix but permanently.

That's the only way to restore confidence in the money markets for long-term lending. Bring interest rates down more and then keep them down. We've brought them down from 21\1/2\ percent to about 16 percent, but that's not good enough. Inflation has dropped from double digits to an annual rate of 4\1/2\ percent for the last 6 months. And wholesale prices even registered a net decline for the past 2 months.

Our progress on inflation means the cumulative increase in America's purchasing power, which has received little attention. It far outweighs the impact of budget restraint in various programs, which has received so much attention. With cooperation from the Congress on spending, I think we can have a strong recovery.

Perhaps you'll have some questions now after we eat, and that's the end of the after-lunch speech.

To all of you in the business you're in and that I started my life out in, I just have to tell you that one lesson I learned very early back then has come in very handy in the years since and even in government. You'll remember, well, not all of you, but some of you back in a day when there was no tape and transcriptions were relatively new, and you put on a drama on radio, the soundman didn't have tape sounds. He had a great big cart on wheels equipped with all sorts of things to make all sorts of sounds. And at the rehearsals of the drama, he would then be experimenting with what would make the sound effect necessary to the drama.

And in WHO, Des Moines, one time in about 2 or 3 days of rehearsal for a radio drama, we watched the sound-effect man, who had to have at one point, an important point in the story, the sound of water falling on a board. And he tried rice on a drum; he tried dried peas on cardboard boxes; he tried everything you can imagine. And finally, desperately, he tried water on a board. [Laughter] And it sounded just like water on a board. [Laughter] And I think that that's a pretty good lesson for government to heed every once in a while with our approach to problems.

Thank you very much.

Note: The President spoke at 12:12 p.m. in the State Dining Room at the White House.