In recent days Ambassador Habib [Ambassador Philip C. Habib, the President's emissary in consultations in the Middle East] and others have been working tirelessly to bring peace to that troubled region. We're dealing with extremely delicate and fast-moving negotiations to save West Beirut and to bring the withdrawal of all forces from Lebanon. The situation is too sensitive for detailed discussion, but I can report to you that this weekend in discussions with Mr. Habib the Government of Lebanon told us that a multinational force might be essential for temporary peacekeeping in Beirut and informally proposed that the United States consider making a contribution to that force.

The Lebanese Government has not made a formal proposal, but I have agreed in principle to contribute a small contingent of U.S. personnel, subject to certain conditions. The United States has pledged to do all that it can do to bring peace and stability to the Middle East, and we must keep that pledge.

Obviously, there's much work still to be done. I can't overemphasize the delicacy of these negotiations. I can only say that in coming days we'll press forward. And I can, once again, praise the work of Ambassador Habib, who has labored heroically in recent days.

And now we'll get back to federalism.

I know that I talked to some of you in Washington recently about this program and assured you then -- and I will now assure those others who weren't present -- that this is not, as you've probably already been told by two briefers -- I have a feeling I'm plowing plowed ground here -- but that this is not a budget-balancing gimmick. This is something that's been a dream of mine. It goes back a great many years, and particularly back to the days when I was a Governor growing increasingly frustrated with Federal redtape.

And we came up with the concept. We didn't present it as a finished plan, as some of you know, but we presented it as a plan as a beginning place for consultations with local officials, mayors, with State legislators, with county officials, and, of course, with Members of the Congress.

I have to say that I think the most reluctance we normally run into -- and that is to be expected -- is at the national level, where there is a built-in resistance to giving up activities or power at any time. Now, sometimes some of them are very sincere. They look at it and think, ``Well, if we're asked to raise the funds as Congress, then we can't turn these funds over without exerting some control over how it is spent.''

Of course, our answer to that is: Let's look forward to a day where they're not raising those funds, where the tax sources which were usurped by the Federal Government at the same time it usurped so many, once, State and local functions -- they usurped the tax sources also. And so, the thing is to accompany the functions with the resources to pay for them.

Now, I'm going to be very brief here in my remarks, because I think we're going to have a dialog rather than my go on talking. But, you know, traveling the mashed potato circuit for many years -- and I know that many of you have done the same thing -- I have often quoted Thomas Jefferson in my protestations, then, against government intervention and big government, particularly, intervening. His line when he said -- ``Were we directed from Washington when to sow and when to reap, we should soon want for bread.'' And yet I never have put that -- I had put that in the context of -- as I'm sure many of you have -- of intervention by, particularly, the Federal Government in things that were not its proper province. Would you like to hear that put in the context in which he said it? -- because it's even more timely than it was in that supposed context in which I myself used it and perhaps many of you.

``Were not this great country already divided into states, that division must be made, that each might do for itself what concerns itself directly and what it can do so much better than distant authority. Every state is again divided into counties, each to take care of what lies within its local bounds; each county again into townships or wards to handle minute details. Were we directed from Washington when to sow and when to reap, we should soon want for bread.''

So, we can claim that Jefferson was the first one to present the present Federal program.

And, as I say, I know that you must share in that frustration too. I could go on citing anecdotes here and examples of the frustration I felt sometimes at the Federal Government's insistence on doing it that way. And yet, I can understand now, being there, how, once they're entrusted with that, they feel that whatever problem comes up must be nationwide. They lose sight of the great diversity of this country. So, they pass a rule that's supposed to fit -- I won't say South Succotash, Wisconsin, anymore, because everybody's started trying to find South Succotash -- [laughter] -- but to fit all these diverse 50 States and all the local communities within them.

And, as I say, since we've all shared in that frustration, why, you must have some questions that I hope haven't been answered already by Rich and Craig, [Richard S. Williamson, Assistant to the President for Intergovernmental Affairs, and Craig L. Fuller, Assistant to the President for Cabinet Affairs] and fire away. I know there are microphones out there.

Unemployment

Q. Mr. President -- [inaudible] -- Oregon, and as you know, the Pacific Northwest has been particularly hard hit by unemployment and also by the economy, although I'm pleased to report to you our own indicators on unemployment started turning around in that State, as we heard yesterday. How does it look nationally? And what do you hope will be the first visible trend in that direction?

The President. Well again, I have to temper my optimism by pointing out that coming out of recessions, normally unemployment is the last thing that responds. It remains stagnant for a while. It has remained pretty much that way now for the last couple of months.

I've gotten into a thing where I go back and forth between the seasonally adjusted figures and the unadjusted figures. And they don't always match. And it confuses me somewhat by that. But I know that, in the month of June, there was an increase in the seasonally adjusted figures that was -- I hope I have it right -- but -- no, they about stayed even -- but anyway -- I may be confused on that between the two in just recently reading them. But at the same time that we have this great unemployment, in June we increased the number of employed by 600,000 and the number of unemployed by 400,000. In other words, a million people, probably due to schools letting out and so forth, entered the job market. And 60 to 40, they found jobs, even in this time of great unemployment.

The other thing is that part of this is not just recession. Although that has hit, particularly in a State like your own, everything to do with construction and homebuilding -- we know everything to do with automobiles, everything, then, to do with steel and rubber and things of that kind around them; those industries that are terribly hard hit -- and we must lay that to the high interest costs.

But part of our problem would be here without recession. And that is the great expansion of the labor force. A higher percentage today of people of employable age is actually in the job force than ever before in our history; so that at the time we have this great unemployment, we still have over a hundred million people actually employed which, to me, gives some encouragement with regard to the economy. I would think, for your particular State -- and I'm delighted to hear what you said, and it jives with the figures we received that in May home construction increased housing starts by 22 percent -- and that would have a reflection immediately in a State as dependent on lumber as Oregon is.

So, I have to believe that all the other indices are that we've bottomed out in this recession. And slow though it may be and always is, there is the beginning of the upturn as -- I'll be an I-told-you-so, saying we always predicted that in the third quarter it would, and increasingly so in the fourth.

Interest Rates

Q. President Reagan, let me follow up on that. I'm a county commissioner from Portland, Oregon. As a student of Von Mesis -- I'm sure you're familiar with Von Mesis, the economist -- he was saying that the market should control the interest rates. Do you feel the Federal Reserve System is controlling -- or putting interest rates higher than normally should be?

The President. No. I have to tell you we can't make a scapegoat of the Federal Reserve at this time. Since the first of the year, they've been working very hard on holding an even increase in the money supply. And some of this is supply and demand. The high interest rates -- and I've been meeting with all manner of people in the financial world to discuss this problem. The available money -- I mean, available borrowers who are willing to pay the high interest rates for short-term loans in business and industry to tide them over cash-flow problems and so forth, is such that there is a market there at the present interest rates for that money.

Now, we're hoping that we can do something that would help persuade them. One thing that has encouraged us is that throughout the country, here and there, there are groups of bankers, local bankers who themselves -- it started with automobiles -- that they got together and each put up a certain amount of money and said, ``This is available for automobile loans at an interest rate that was well below the present market rate.'' And they said, ``As long as this money lasts.'' And the upsurge in automobile buying in those areas was dramatic, to the point of being drastic.

Now, since then, there have been some local banks and groups of banks that have been doing this with regard to home mortgages, bringing them down to less than the market rate of interest, but putting up a specified amount of money and saying, ``As long as this sum lasts, we'll do that.'' I'm just hoping that this will not only spread but that this might lead then to just the general reduction of interest.

Part of it is also psychological. They've still got to be convinced that we and the Congress intend to keep on hammering away at government spending to bring down inflation where it has been brought down.

Incidentally, you might all be interested to know -- this is one of the figures that's overlooked -- that in the decline of inflation over the last year, the increase in purchasing power for people at the poverty level is greater than all the benefits that were ever prescribed through government social programs. The $15,000-a-year family of four, that income has received about a thousand-dollar raise in purchasing power simply due to the drop in the inflation rate.

I'll get back there in a minute.

Flat Tax Rate

Q. Mr. President, I'm a legislator from Idaho. Our Congressman, George Hansen, has proposed a flat tax rate. Does your administration support that kind of a measure?

The President. Let me just say, we support looking at that. It's a very tempting thing, because let's all of us admit that probably there is more resistance to the income tax in America today, not from the amount of it, but from the complexity of trying to figure out what the amount should be, that the people are pretty fed up with something so complex that even the government has to warn that their own agents cannot be depended on to give you sound advice as to what your tax burden should be. I can remember when you used to go in there to them and just hand it to them, and they'd tell you what you owed and that was it. They can't even do it anymore. So, the flat rate does look tempting.

There are some other things. I know that many charities and educational institutions are concerned lest a flat rate doing away with that deductibility for them might dry up giving. I was concerned about that, but the more I think about it, we're the most generous people on Earth. I don't think that people would quit giving what they give simply because you've changed the system of taxation. After all, people were contributing to charity in America long before we had an income tax.

So, I think it is something worth looking at. Certainly, we've got to find some way to simplify the tax paying. I just got the figures the other day from the Treasury Department that out of the 4,112 people with million-dollar-a-year incomes in this country, a million or above, about 40 of them used the simplified form this year.

The lady just behind you there.

Regional Council of Governments

Q. Mr. President, I want to thank you very much, and I admire you for trying to adhere to Thomas Jefferson's federalism program, and I'm all for it. But I am concerned about the third layer of government that we have called Regional Council of Governments. Do you have any plan to do away with that?

The President. Now, wait a minute. What was the term?

Q. The Regional -- Regional Council of Governments?

The President. No. I do know this, that in an effort -- as the Federal programs over the years grew and grew and became so complicated and so authoritarian in their directions, that some years ago an administration proposed and did start regionalizing, thinking that this would simplify and make it easier for States and local governments to go to a regional administrator of some of these programs than to have to go to Washington each time.

My own feeling is, that just further involved the Federal Government and, if anything, made it even more complicated than it was. But I can assure you that all of these things and such as that will be looked at as we go forward with this.

Federalism Initiative

Q. Mr. President, I'm Harley Hoppe from Seattle, Washington. We were invited here to learn about your concept of new federalism, and it's a concept I'm sure everyone here in the room will applaud and work very hard to promote. My question is, what is the single most important thing that we can take home to our area to help sell your new program?

The President. I would think the simplest thing and the simplest answer is that under the programs the way they are -- and I remember in Governors' conferences getting frustrated at hearing some of my fellow Governors advocate that the answer to their distress was turn more over to the Federal Government, give it to the Federal Government, get away from -- and I think some of that was a reluctance to be responsible for raising the funds themselves to handle these things at a different level, at their own level of government.

But the money was coming out of the same pockets and the same people -- their own constituents, their own citizens in their State, their county, their local community. And when the Federal Government has to take it, the Federal Government dips deeper and takes more money for the same programs than will be spent on those programs if they are administered closer to the people. It is just a known fact that the percentage for administrative overhead to deliver a service to the people increases the higher you go in the echelons of government. So, when I said it wasn't a budget-balancing thing, but it is a budget-relieving thing for all of us.

At the local and the State level, as I learned, as I say, from my own experience, when you have to do it abiding by all of the redtape and the regulations of the Federal Government, it comes out more costly than if you had had the ability at your own State level to sit down with the problem and say, ``How are we going to resolve this? What are we going to do?''

And what I think is that federalism will get rid of a gigantic layer of administrative overhead based in Washington. And maybe this is one of the reasons why so much of bureaucracy is opposed to this, because, you know, I think that poverty has become a career for a lot of well-paid people. [Laughter]

My goodness, I know he tells me I can only take one more question, so I'll take yours. But I also just wanted to say -- it's been called to my attention that -- I know this is a bipartisan gathering, but the Republican nominee for the United States Senate is here, the mayor of San Diego, Pete Wilson. Pete, where are you? Hey, good to see you. I'll bet if Pete gets there he'll support federalism. He's had to deal with it at the local level too.

Yes, sir.

Q. Mr. President, I'm a mayor. Only the mayors haven't spoken yet, and we, I think, would all say we thank you for the pass-through provision in the new federalism proposal. We appreciate it.

The President. Well, that isn't a question, but thank you very much. I appreciate it.

Well, then I'll take the question back there.

Social Security

Q. Mr. President, Fred Adams from Colorado. I'm curious, has the administration taken a stand on the two pieces of legislation that would force the States, on the public employees retirement program where we have a program that -- which would federalize it and throw it into social security? I can't see that this will help social security. But we're concerned; it will cost us a tremendous amount of money if we have to go this route.

The President. You didn't answer questions, huh, Rich? [Laughter]

I have to tell you that so far we've had no Cabinet meeting -- the Cabinet Councils, which meet in those -- who are interested in the particular subject -- meet on some of these things before they come to an actual Cabinet meeting -- then for final decision and where I'm involved. And I have not been involved in that, but I understand some of what your concern is.

May I also just say I'm leaving here to speak to a group of senior citizens with regard to social security, and I can say to you, as I'm going to say to them, that this has become such a political football every time someone's tried to deal with it. It is a program that -- in 1977 they passed a tax increase and boasted that they had -- for social security -- that they had solved the problem of social security's fiscal integrity to the year 2015. Now, a couple of the tax increases have already gone into effect. There are a couple more in the coming years still to go into effect, in addition to increasing the amount of income against which the percentage of the tax is based -- I think it winds up somewhere in the 60,000 range or above -- that would be taxed for social security. And even with that, the biggest tax increase in our history, social security must have something done to restore its fiscal integrity before July 1983, or it will be out of money.

So, we've decided that just raising the taxes isn't the answer to that problem. And we have a task force that is to report back in December, made up of -- bipartisan -- of representatives appointed by Speaker O'Neill, by the leader of the Senate, Howard Baker, and by myself. And I don't know and have not inquired of them where they are in their deliberations.

But we think that there has to be a whole restructuring of social security. And I could tell you that, from my own view, I don't believe that the answer is just getting more people into it or involved in it. The one thing that I will say to you is -- as I'm going to say to them also -- the one thing that I've insisted on that in any plan that is drafted, there must be a guarantee that those people presently dependent on it are going to continue getting the benefits and the checks that they expect. There's no way that we can pull the rug out from those senior citizens who are totally dependent on this program. And we're not going to do it.

Now, they tell me that I've run out of time here. I'll have to keep straight now when I get to the next stop that I'm speaking to my own generation and not a mixture -- [laughter] -- of local and State officials here.

But thank you all again for coming here and the interest that you have shown in this. And if I could make one last appeal to you all, it is going to take you and the people at the grassroots to get this through the Congress. And I do know that when they hear from home, things happen. I've used the expression sometimes that, while it's nice to make them feel the light, it's better to make them feel the heat.

So, I'll count on those of you, even some who might not be sold yet, to keep your minds open and then let your Congressmen know that you want this federalism program and that the people who run the affairs of the cities, the counties, and the States, believe it or not, are just as compassionate and considerate of their fellow citizens as is the bureaucracy on the shores of the Potomac. I know that for a fact. And you know it also.

So, God bless you, and thank you very much.

Note: The President spoke at 11:04 a.m. in the Beverly Hills Room at the Century Plaza Hotel.