I always look forward to coming home to California, but I'm especially glad to be here today. July 1st is the date on which this administration redeems two of its most important promises, I think, to the American people. First, social security recipients receive today the 7.4-percent increase they're entitled to and that they were promised; and second, this is also the date when our revolutionary tax program and its first across-the-board 10-percent reduction takes effect.

California is where the stirrings of the tax rebellion were first heard, and judging by the recent election here, they're still being heard. Those who've come from out of State, just about every spending measure that was on the ballot in this recent June election was defeated, and all of those that called for more savings and so forth and tax cuts were approved. So, it's especially appropriate to be here on this day when one of the largest Federal tax cuts in American history takes place.

Actually, though, this tax rebellion and the tax cut itself is only a symbol of much deeper change that's taken place in national politics during the last year and a half. In pointing out the enormity of this change, Murray Weidenbaum, the Chairman of our Council of Economic Advisers, sometimes liked to talk about the Sherlock Holmes story where the key clue was not found in anything that happened, but in that which didn't happen -- the dog that didn't bark. Historically, whenever the economy hit a slowdown or recession in the past, the hounds of big government started their ritualistic baying, and there were demands for all sorts of pump-priming, make-work programs, public-service jobs, increased spending, and bigger deficits. You remember how we were always told with those deficits not to worry about the debt; we were told that we owe to ourselves.

Well, during our present economic troubles we've managed not only to stifle the calls for government spending and expansion or intervention, but we've actually attacked the root causes of the recession by reducing taxes, dramatically slowing the rate of growth in Federal spending, and cutting and streamlining hundreds of Federal regulations, and getting a firm hand on inflation. I have told some audiences recently George Bush is in charge of the task force on eliminating the unnecessary regulations that we talked about during the campaign. In the coming year, the American people will be saved 200 million man-hours of paperwork by the regulations that have been eliminated so far.

Well, these things mark more than just a change in those government policies that led to the boom-or-bust cycle of periods of recession and high unemployment followed by periods of high inflation. Until this present recession there had been seven or eight -- I may have lost track and I'll cover myself by saying that so I won't be charged with an inaccuracy. It means that we've broken a long and destructive historical trend and that gradually economic decisionmaking is being put back in the hands of the people. It means that we're taking economic power away from the public sector and getting it back to the private sector so they can prosper and expand.

And this provides for more than just a quick upturn in the economy for the months ahead. We're getting undue government intrusion out of the marketplace. By encouraging incentives and rewarding enterprise, we're laying the groundwork for steady and sustained growth over many years. We're releasing the pent-up energy and initiative that has for so many years laid dormant in the American economy.

Although as news men and women you have all you can do to faithfully and accurately report the events of the day, you also know that you perform a most important service for your readers and listeners when you can provide them with more historical perspective on those events. I think there's been a sea change in American domestic policy during the year and a half since we arrived in Washington, and that's why I wanted to mention it today.

Very briefly, if you'll permit me, I think you've seen this same sort of significant change that took place domestically take place in foreign policy. You know, for too many years our adversaries were successful in convincing us that they had the right to criticize or accuse us of any kind of outrage, but that any attempt on our part to point out the evils of totalitarianism was somehow an act of belligerence. I've never been able to understand those people who could say, ``How dare you call someone a Communist, you Fascist you.''

I think we've made a long overdue break with this psychology. I can't think of an administration that has been more energetic or sincere in coming forth with new arms control initiatives. Yet, at the same time, we've candidly pointed to the decay of the Soviet experiment and robustly defended the ideas of personal freedom and representative government. I think this kind of candor dramatically improves our chances to negotiate meaningful arms control agreements.

Let me just add: Our willingness to speak for freedom is no bargaining chip. It's an integral part of our foreign policy. Without timely expression and emphatic endorsement, our own belief in the principles of human freedom and representative government must eventually atrophy and wither. This must never happen. We must stand for our beliefs and our values and, in doing so, inaugurate a forward strategy for freedom.

So, in little more than a year and a half on the domestic front, we've turned away from state power and back to the real source of economic progress, the energy and intiative of the American people. And on the international front, we've come forth with important new initiatives, while embarking on a forward strategy for freedom that reinvigorates our own commitment to individual liberty. It increases the chances for the expansion of democratic rule to the rest of the world.

And now I understand there are some with microphones there for questions and -- yes.

Strategic Arms Reduction

Q. Mr. President, my question is: The change in command at the State Department could impede the progress of the START talks, at least for openers. How does the White House and START negotiators intend to deal with this?

The President. As a matter of fact, if I had thought that such a thing as this could have impeded in any way our legitimate effort to get a reduction in the strategic nuclear weapons, I would have not accepted, but fought against accepting, the resignation. It had nothing to do with anything of that kind, and I am convinced that we're going forward with the best opportunity that we've had in a long time, in a number of years.

In recent years in our efforts -- first of all, I don't know how many people are aware that since the war -- since World War II, this country has proposed and tried to secure arms reductions and limitations and so forth of various kinds 19 times with very little success. I think part of it in recent years has been because we ourselves embarked on a program of unilateral disarmament, and the Soviet Union was out to catch up. We at the end of World War II were the only truly superpower in the world. We were the ones who still had no industrial damage done to us by the scars of war. Our military was intact and had not suffered as great a loss as those who had been in prior to our going into the war. And we tried from that vantage point, as we all know, to bring about these reductions.

I believe now that our military buildup and the fact that we have shown the will, the ability to go forward with a military buildup, is what has brought the Soviet Union to the negotiating table as quickly as they came. And it's this that we think will keep them there. I think it's best explained by a cartoon recently that one of your papers ran, and that was a cartoon of Brezhnev speaking to a Russian general, and he was saying, ``I liked the arms race better when we were the only ones in it.''

The hand right back there.

Natural Rubber Industry

Q. We want to thank you for bringing the natural rubber industry out of oblivion. And now you've turned it over to the Navy.

The President. Would you -- so everyone could hear.

Q. And the Navy is -- has regulations which are keeping it from doing anything. Is there any possibility of talking to the Navy and get some of those restrictions lifted?

The President. Now, what restrictions in the Navy are you asking about?

Q. About natural rubber. You're trying to build a natural rubber industry, which is going to bring jobs to this country, which is great, especially in Salinas, California. But the Navy is embedded with regulations which are preventing its moving out. Can we do anything about it?

The President. All I can do is tell you -- I'll do right now is I'll go back and tell Cap Weinberger about that question. [Laughter] It was something new for me.

Nuclear Arms Freeze

Q. Mr. President, relative to your arms control initiative, the coordinators of the California nuclear freeze program are suggesting that if you're serious about reducing nuclear arms, the obvious place to start is with a stop. And they wonder whether you would accept that and supporting the California nuclear freeze on the ballot in November.

The President. Jeff, I think the only problem that I have with the freeze is, I know the people are sincere and all, but they've got the freeze at the wrong end of the negotiations. The Soviet Union does have a decided edge on us and does have, at the moment in strategic weapons, a nuclear -- a building, a production capacity greater than ours. They had three assembly lines going. We have none. The last administration closed down the only assembly line for them in 1977.

This -- a freeze is just fine. And that's very much a part of START. Once we get down on an equal basis and to a vastly reduced level -- and, as you know, the talks that started several months ago, the INF talks in Geneva having to do with the intermediate-range missiles that are aimed against the cities of Europe, while there is nothing to match them until our NATO allies get the Pershing missiles and the cruise missiles from us -- and so we've advocated there a total zero base. They eliminate their SS - 20's and - 4's and - 5's; we won't place those Pershings or those cruise missiles.

And, again, I think they came to the table only because they know we're building those Pershings and those cruise missiles and the European allies of ours said that they would station them in their countries. And they accepted our invitation immediately.

But the freeze now, I think, would make this country dangerously vulnerable to nuclear blackmail.

Weapons Policy

Q. Mr. President, David Owen from KCST - TV in San Diego. Did we learn anything in the Falkland Islands or watching the Middle East crisis that would make you want to speed up bolstering our own defenses or change the bolstering of our defenses in any way?

The President. I think there were some things learned about ship construction there. I don't think that it applies to any of our ships. And, with regard to missiles and missile defense, and I know that our people in the Pentagon are studying everything that happened there. I can't say yet that I'm privy to whether there was anything that's really surprised them. I don't know whether there was.

There's a hand way back there.

Trident Submarine

Q. By way of a follow on that, sometime next month, the U.S.S. Ohio, the first Trident nuclear submarine, will move into its home base at Bangor, Washington, on Hood Canal, not far from Seattle. What would you say to those individuals who are strongly opposed to such a large and lethal weapons system, not only to it but to the idea of basing it in Seattle's backyard, so to speak?

The President. Well, it's got to be based someplace. [Laughter] But I think we've proven over the years that there is no risk -- well, you can never say that there is no risk, any kind of accident, sometime or other, could happen. But we've had nuclear-powered vessels. We've had nuclear weapons. We have nuclear weapons being carried airborne and so forth. I can't see that there's a legitimate reason why that should be denied a base.

I think the safety provisions in those weapons has made them virtually fool-proof to any accident. There's quite a procedure that has to take place before they can be detonated. And so I cannot see anything that would cause them to be -- they probably have a higher level of safety than normal munitions, explosive munitions, have.

Q. If I could follow on that, what would you say it would take for you to decide that further deployment of the Trident subs would not be necessary?

The President. Well, this is a part of the START talks.

We started with the land-based missiles, because we felt they were the most destabilizing. I can tell you our thinking and why we based the decision, which was my own. The missile is the thing that the person's -- the average -- when I say destabilizing, the average person can foresee, whether accidentally or not, or inadvertently or not, someone pushes a button and 30 minutes later a city blows up in our country or, if it's the other way, in theirs.

Submarines and airplanes carrying such missiles are conventional type weapons in themselves that have got to put themselves in position. In other words, they can be intercepted and destroyed in normal warfare without that 30-minute doomsday threat. Now, doesn't not mean that they shouldn't be eliminated.

But we've set out first to reduce those destabilizing ballistic missiles and then to reduce the others at the other level. And what we have come up with is a proposal that no more than half of the warheads that each country would have under the terms of this treaty would be land-based. And the other half -- surface vessels carry missiles now as well as submarines, on both sides.

But, again, it would depend on these negotiations and this treaty, because I can assure you, the Soviet Union is progressing in the development of nuclear-firing submarines to the point that the latest word we have is one they've built that is as long as one of our aircraft carriers.

This is awful -- choosing hands here. I'll come back over here after this one.

Israeli Invasion of Lebanon

Q. Mr. President, you said yesterday that Mr. Begin's pledge to you that came during the meeting last week had been mistakenly reported as a promise that Israel would not invade further into Lebanon, that in fact he had said only that he hoped that Israel would not have to invade further into Lebanon. If that is true, number one, how could that have happened? And number two, why did the erroneous report -- why was it allowed to go uncorrected for so long?

The President. On the pledge idea? I didn't know -- he had several conversations with other people. And when I first heard that he had made this promise, I was going to check with the State Department to see had he said it there. It turned out that it -- and how it could happen was, I think, explainable. It was a case of the second hand repeating -- maybe even third hand -- within the shop of the conversation that I had had with him, which was a conversation just between the two of us and which he had expressed the fact that he did not want to invade Lebanon. And this had never been his intention -- and how the cease-fires kept being broken and so forth and it arrived to that threatening place. And so, as soon as I realized that it was based on my conversation with him, I corrected the fact that, no, he had not promised. He had said that that had not been his intention, and he did not want to if he could avoid it.

Insanity Plea

Q. [Inaudible] -- KHJ Radio. There's growing criticism against the insanity defense in Federal felony cases. And I was wondering what your feelings are in this area?

The President. Well, if I can dissociate the question from the recent decision and the recent trial [The President was referring to the trial of John W. Hinckley, Jr.] -- because I don't comment about that -- I can honestly say that in legal circles there has been, for some time now, among other criticisms of our justice system, there has been widespread criticism of the use of insanity and the manner in which it is done in trials and whether justice is really done. And I know that now that has stepped up -- that conversation. And a number of people in the legal profession and the Justice Department are looking into what could be done to change this perhaps from ``not guilty by reason of insanity,'' to ``guilty but insane'' and then settle on a proper course following that. The thing that has also caused a lot of criticism is the fact that the ruling placed on the backs of the prosecution the need to prove that someone was sane rather than the other way of proving that he was insane. And, you know, if you start thinking about even a lot of your friends, you have to say, ``Gee, if I had to prove they were sane, I'd have a hard job.'' [Laughter]

Economic Recovery Program

Q. Mr. President, you vetoed the housing bill -- and I represent KXL in the Pacific Northwest in Portland, Oregon -- and that's water over the bridge now. But what sort of aid and comfort can you give to the Pacific Northwest in the areas of timber and housing industry in the light of your veto?

The President. I wish I could promise an instant cure. We believe, however, that our economic program, which is aimed at restoring our economy and getting it going, the things that we've been doing with the budget we believe are all designed to, hopefully, in the coming months get interest rates under control -- get them to come down to where they properly should be -- and that all this will stimulate.

I can say by way of encouragement, you know it's taken 3 months -- the economic indicators 3 months in a row are on the upturn -- that you've bottomed out in the recession. We said that we would, at the end of the second quarter, that by that time that in the third and fourth quarters we would be in the recovery stage. We don't think that's going to be a sudden upsurge or a boom, but we do think we're on the way up, and in the month of May housing starts increased by 22\1/2\ percent.

We felt that that housing bill that I vetoed when it was tacked onto another measure would be counterproductive -- that first of all, by the time that it was implemented and in place that it would be tagging along behind what could be a better recovery, particularly if we can get some drop in interest rates. We felt also that it being a spending program, which would increase the deficit, would send the wrong signal to the money markets, who are the ones who must lower those interest rates, and would send a signal that we were going back to the old-fashioned way of the quick fix -- the things that I mentioned in my remarks of government trying to stimulate the ecomomy with government deficit spending, and they would then protect themselves against possible resurgence of inflation by keeping or raising the present interest rates.

I think that we were right in that decision. I also, though, am encouraged -- and maybe some of you could with your ability to contact the public -- maybe you could start writing and telling some of the stories about various areas in the United States where local banks have gotten together and have put up each one a certain amount of money. It started with automobiles. They put up a certain amount of money and said this money is available as long as it lasts for automobile loans, and they had a figure that was well below the going interest rate.

Now in several areas in the country local banks are doing this with regard to home mortgages and are bringing them down to a few points below the going rate. And I just think the word ought to be spread, because this is where we're going to get the recovery. There's no question but both automobiles and housing, separately or together, can create a recession. And it is a hard-hit industry.

We're encouraged by the upsurge that took place in May. We hope we can keep it going.

One more. There's a young lady. As long as I have to choose one more, I'll choose the young lady. [Laughter]

Israeli Invasion of Lebanon

Q. Thank you, Mr. President. Jeanne Innerson from King Television in Seattle. It was reported today the Egyptian foreign minister said that your administration knew about Israel's pending invasion of Lebanon and didn't do anything about it in return for Israeli promise of support for Mr. Haig's Presidency in 1984. Could you comment on both parts of that question? [Laughter]

The President. You say the Egyptian Ambassador said that?

Q. No, it was said by the Egyptian Minister of State for Foreign Affairs today. He also said that it's the widespread perception among Arab countries.

The President. Oh. He needs to be talked to. [Laughter] No, and we do know -- and this is very troublesome; it's very difficult for me to comment -- and I've been grateful that there haven't been more Lebanon questions, because the negotiations are so delicate right now that, as I said last night in the press conference, there's very little that I can answer. But this I can answer.

We know that the Arab States -- and many of which we've been trying to establish a bond with them so that we can bring them into the peace-making process with Israel, and we've called it ``create more Egypts.'' This is the only way we're going to settle that particular problem in the Middle East, is if we can get more Arab nations that are willing to come forward as Egypt did and establish a peace treaty, recognize the right of Israel to exist. And we've been doing this.

We're terribly disturbed, because it has come to our attention that for some reason they are convinced that we -- if we did not actually connive and give our consent, that we were aware of it and did nothing about it. We were caught as much by surprise as anyone.

We've had Phil Habib [The President's emissary in consultations in the Middle East] there who, as you know -- and God bless him, if there's ever a hero -- Phil Habib, as you know, created, when we first sent him there, and has kept alive for 11 months until this latest tragedy the cease-fire in the Middle East. He's done a superhuman job. And he's still there and negotiating. And that's why I don't want to do anything to louse up his act.

But we knew that they had gone up to the border as a threat. We knew they'd mobilized; the whole world knew that, and you were all writing and talking about it. And it is true that the PLO from across the border had shelled and rocket-attacked some of the villages in Israel. But when they crossed the border -- and presumably to go only 40 kilometers and then form a line to protect their border against these artillery attacks -- that was a surprise. Then when they did not stop -- and they justified that on the basis that once they tried to stop, they were under attack, and they had to keep pursuing the enemy -- no, this was not done with our approval or our consent.

And I will have to say on behalf of Al Haig: Number one, I don't believe he has such ambitions, and, number two, believe me, he's served his country too long to have done anything of that kind. He never would have.

And we're continuing with everything we can do now. We've been 5 days in the present cease-fire, and we're just hanging on that -- we can maintain and that the negotiations will be successful. And as I said last night -- I'll repeat them -- the three goals are: for Lebanon to create a stable government, which they haven't had for 7 years -- they've had several factions, each with its own militia -- but a single united Lebanese army and government controlling its own territory; guaranteeing the border between Israel -- because so far they've had another government and army living within their midst, the PLO -- changing that; and then all the other countries getting out of Lebanon. And we're working as hard as we can to that end.

But anything you can all do to convince the Arab States -- we're trying our best. But, no, we were not a party to that.

Now I have to -- this is the same thing as last night at the press conference. The one thing that I can never get used to is having to walk away from all the hands that were raised and that weren't recognized. And to all of you, I'm sorry, and I apologize. And if every question could be answered yes or no, maybe we could get to all of them, but we can't.

Thank all of you. I appreciate it.

Note: The President spoke at 1:22 p.m. in the Beverly Hills Room at the Century Plaza Hotel. Prior to his remarks, he attended a reception for the editors and broadcasters in the hotel.

Following the question-and-answer session, the President left Los Angeles and went to Rancho del Cielo, his ranch near Santa Barbara, Calif.