Let's talk about the budget, the one subject that most directly affects your pocketbooks.

Now, before you say, ``This is where I came in,'' there has been a new development. We're making some progress toward a budget agreement that will hold down your taxes and get government spending under control. This is the one sure way we can keep inflation coming down, bring interest rates down as well as deficit spending and, most important, get our factories working again.

Washington is a town that loves to spend money -- your money. And if that isn't enough, they'll borrow -- a trillion dollars so far.

As the French economist Bastiat said a long time ago, public funds seemingly belong to no one; the temptation to bestow them on someone is irresistible.

I've said before, and let me say again, many of the spending proposals are motivated by sincere compassion, compassion we all feel. But pretty soon, if we aren't careful, we find ourselves inventing miracle cures for which there are no known diseases. That's what led to the situation in 1980, when Federal spending was increasing by 17 percent and the inflation rate was 12.4 percent. Interest rates reached a 100-year high of 21\1/2\ percent.

Obviously, something had to be done. To continue down the road we were on would have meant disaster. So, when we got here in January of 1981, we changed course.

The 17 percent annual increase in government spending was cut almost in half. That 12.4 percent inflation rate has, for the last 6 months, been 2.8 percent. For the last 3 months, it has only been eight-tenths of 1 percent. Interest rates have come down some, but not enough yet to give the economy the boost it needs.

As you know, we put in place tax incentives to help industry retool and modernize. And we've provided tax reductions for individuals so families could keep more of the money they earn. It's the first broad-based program to help all American taxpayers since President Kennedy's tax cut nearly 20 years ago.

The average family will see its personal withholding rate cut by 20 percent in the next 14 months. There'll be a 10-percent cut July 1st and another in July of 1983.

Even though we've only had the first installment, a 5-percent cut last October, we're seeing some signs of the incentives that a tax cut brings. Personal spending is up, and Americans are saving at a higher rate. Saving is one of the best ways people can help themselves and our country. As the pool of savings expands, interest rates come down and billions of dollars are made available for new investments, mortgages, and jobs.

Yesterday, the United States Senate took another step to get spending under control. It passed a budget resolution that will reduce projected deficits $358 billion over the next 3 years. I'll be honest with you: I would have liked more reductions in spending, but at least it's another step in the right direction -- the direction we started to go last year.

In contrast to this responsible action by the Senate leadership, the leadership of the House of Representatives is trying to spend more and to eliminate $150 billion or so of your tax cut. Their idea for reducing the deficit, for example, is to eliminate the third year of the tax cut. They have another idea which somehow doesn't go with their claim of compassion. Once that final income tax cut is in place, we have one further step to go. We permanently index the income tax brackets against inflation. This, too, the spenders would take from you under the phony claim that it only benefits the rich.

During these recent years of inflation, many of you have received cost-of-living pay increases. These don't make you better off. They just keep you even -- even, that is, till income tax time. Then you find those added dollars have pushed you into a higher tax bracket where you give the Government a greater percentage of your earnings and end up with less purchasing power, not more.

Indexing prevents this from happening. Now, how can indexing hurt the workers and benefit the rich? It can't. And those who say it can are talking through their hats as usual. The rich and the high income earners are already in the top tax bracket. They also don't get cost-of-living increases. It's the wage earner who needs and, in our program, will get indexing.

Incidentally, to be fair, I must say those same individuals who would take indexing away from you also do want to cut spending -- defense spending, and really only defense spending. Eliminating about 73 percent of our planned increase in the defense budget is their goal. Fortunately, some responsible Republicans and Democrats in the House have proposed a better plan, somewhat similar to the one passed by the Senate. It will preserve your tax cuts, reduce spending, and keep America strong. They are calling their plan the bipartisan recovery budget, and it will be voted on the first of this coming week.

If you want interest rates to come down and the economy to get going, it wouldn't hurt if you told your Congressman to vote for the bipartisan recovery budget. But do so right away.

Until next week, thanks for listening, and God bless you.

Note: The President spoke at 12:06 p.m. from the Oval Office at the White House.