Well, as some of you may know, today marks the second anniversary of this administration. How time flies when you're having fun. [Laughter] A lot can happen in 2 years. Just looking around this room, I can seen the signs of change everywhere. Judging from this group, I seem to have given more gray hairs than I got during the last 2 years. I guess you can chalk that up to the luck of the Irish.

At any rate, here we are at midpoint in the first term, so I thought a little personal perspective might be appropriate. Looking back, I guess my greatest satisfaction is the conviction that a country that was skidding dangerously in the wrong direction, losing the respect of friends and foes alike in the world and, even worse, losing faith in its own future, has been set on the right course. We've begun to undo the damage that the overtaxing, overspending, overregulating binge of the sixties and seventies inflicted on the American way of life, and we've made America respected in the world again.

My biggest regret is that because the accumulated damages piled up so high for so long, putting America's house in order has been a tough and painful task. I remember John Kennedy saying that when he came into office, the thing that surprised him most was to find that things were just as bad as he'd been saying they were. [Laughter] In my case, the biggest surprise was finding out that they were even worse. And it's a real human tragedy that so many of our people today are still suffering from the political mistakes of the past that we've finally started to correct.

But now let's look ahead for a moment as we enter our third year. I see an American economy and an America on the mend. Nearly every economic indicator shows us heading into recovery. The same economists who were arguing a few months ago about how much worse the economy would get are now arguing how strong the recovery is going to be. And I think that's a step in the right direction.

We've reached a bipartisan compromise to save the social security system, and our efforts to strengthen our security and build a more peaceful world through arms reduction negotiations with the Soviet Union and through helping the peace process in the Middle East and other world troublespots are in full swing.

Right now, I'm in the process of making final budget decisions. I'm not here to leak any details. But I can tell you that our budget will be fair, realistic, and will pave the way for a strong, sustained recovery. And so I'd say for all our troubles, midterm finds this administration and this country entering a season of hope.

Now, unless someone's going to bring out a cake with two candles on it -- well, first, I just want to show you, and this is going to be distributed. This is a record. All of the legitimate leaks are combined in here. [Laughter] It's a 2-year review, that will be distributed to all of you, of what has taken place and what has been accomplished in government in these 2 years.

And now, I think it's time for questions. But again, I'd like to suggest that if we get started on whatever the first question is, and get started on that subject, that maybe it would be a little more orderly if we said, ``Well, okay; anyone with further questions on that subject?''

Gary [Gary Schuster, Detroit News]?

The Economy

Q. Mr. President, you pointed out the high points of your first 2 years. What are the low points? Does the failure economically of the budget not to grab hold, the high deficits, the high unemployment -- are you taking responsibility for those as well, sir?

The President. Well, I would think some of the disappointments have been that in the give-and-take and the compromise that has to take place in the legislative process, we never did get, intact, what we thought was a well thought out economic plan. We had to give way with regard to limits on spending in many areas; we've never gotten as much as we asked for that. We did not get the tax incentive program intact and with the impact that we thought it would have on the economy. [Inaudible] -- 30 percent, for example, in that one phase of the income tax, to be put in retroactively beginning in January of '81 -- to get only half of that installment, and get it down the line in October, and so forth -- the things of this kind.

I think something over which we had no control was the maintaining of the high interest rates for so long when they pulled down from the great money upsurge of the eighties, which perpetuated the interest rates to the point that I think they were responsible for the step off the cliff. This recession did not begin in July of '81. This recession had been coming on for several years and gradually growing worse, as we were able to talk about in the campaign.

Lou [Lou Cannon, Washington Post]?

Q. Mr. President, knowing what you do now -- this is really a followup to Gary's question. Is there anything that you, yourself, as President, would have done differently in those 2 years with the knowledge of the economy that you're now experiencing?

The President. Well, I could have demanded a recount. [Laughter]

But, no, we tried very hard. And I think in a compromise, all in all, we did get a goodly share of what we asked. But I can't think of anyplace where we would have changed courses drastically.

The Soviet Union and Arms Negotiations

Q. Mr. President, do you wish now, in hindsight, that you hadn't started out with such a very tough rhetorical line about the Russians?

In the last 2 years, I think many observers think that you've been in a push-pull situation -- one day as in London, talking about a crusade for freedom, the next day as in Bonn, talking about accommodation with the Soviet Union. And just this morning, the Soviets are saying that they will break off the arms negotiations if we go ahead with our missile deployment in Europe. Where do we stand there with the Soviets?

The President. Sam [Sam Donaldson, ABC News], let me jog your memories a bit. In that first press conference across the street, the question that was asked of me was with regard to my personal trust in the Soviet Union, did I trust and believe in the Soviet Union. And I did not render as an opinion of mine the things that I said about them. My reply, if you want to go back and look it up, was that this is what they said of themselves, that they reserve these rights to break a promise, to change their ways, to be dishonest, and so forth, if it furthered the cause of socialism.

Now, just the other day, one among you somewhere has written and commented on that and has quoted the 10 commandments of Nikolai Lenin that he printed as the 10 principles, guiding principles of communism. And they're all there, that promises are like pie crust, made to be broken. And he went right on down the line, that the Soviet Union considered the -- and I used this, I quoted this 2 years ago -- he said that the Soviet Union believed that the only morality was that which furthered the cause of world socialism, that they recognize no immorality.

No, now I said I'd recognize Lesley and then I'll get -- --

Q. Could I have a followup on that?

The President. Yes.

Q. Because I asked that question. And the question, roughly, was, ``Mr. President, do you think the Soviets really want a true detente or are they after world domination? What do you think their goal is -- -- ''

The President. I thought there was something in there about trust.

Q. And 2 years later, sir, what is your assessment now? What would you say today to that question?

The President. We're going to continue, because we believe that the Soviet Union has some problems of their own that have to be resolved. And in these negotiations that are going on, we think that it would be in their interest as well as ours. That's why we are so hopeful and optimistic that something can be gained here, that they cannot go on down the road they're going in a perpetual arms race. And so this is one of the things in connection with our own arms race. It gives us a leverage that has brought them to the table in the first place.

Now, we know that the thing they don't want, above all, is the placement of a deterrent to their SS - 20 missiles in Europe. And we claim that to continue to stand there, with them having enough warheads to literally wipe out every population center in Western Europe, with no deterrent on our side -- and the NATO allies recognize this, and we have said at their request that we will provide a deterrent. But we have said it would make a lot more sense if we simply, rather than two sides facing each other there with these missiles poised at each other, if we simply went to a zero option.

Now, they've agreed halfway with that. They want us to remain at zero, and they're willing to trim a few of their warheads if we will.

Lesley [Lesley Stahl, CBS News]?

Q. I have two questions. One is, you seem to be saying that you do not trust the Russians at the negotiating table. I mean, are you saying that you -- --

The President. No, no. At the negotiating table, they've got to make proposals which we can then counter, and we keep on negotiating. This is a little bit like haggling over the price.

Q. But the pie crust -- you're saying that they make promises that you can't believe.

The President. But, now, this is why the most important part in arms negotiations, from our side, must be verifiable. We must both agree to the right of each side to verify that the other is doing what it said.

Q. All right. My second -- so there is some trust that you can build into this. Is there any flexibility in your zero-zero proposal?

The President. Lesley, the trouble is if I answer that, then I'm getting into what I said I wouldn't talk about the other day. You can't talk openly about strategy or tactics. We have said -- and we stick to it -- we have said that we believe the best solution for both of us is zero-zero, both sides. But we have said we will listen to and negotiate any fair proposals that are made.

Q. But this is beyond negotiating at the table. It's become a public relations, propaganda campaign that the Russians are waging in Europe. Do you not want to jump in and get in the propaganda thing and answer the Soviets to the public?

The President. Yes. The answer to that is not propaganda; it's public relations. There is no question their goal is that whatever they do, they do not want us to implement the plan of placing even one of those missiles in European soil. And we are just as determined that we are going to stay on schedule with that.

And when I say it's public relations on our part, it requires us to remind those people that are hearing this propaganda, both here and in Europe, that what the Soviet Union is demanding is the right to maintain enough intermediate-range nuclear warheads to literally, as I say, hit every population center in Europe, but they don't want a single weapon of a deterrent nature to be there on the other side. And when the people realize that, I think the people living in those population centers are going to have something to say.

Taxation

Q. Mr. President, I know you have been trying to make taxes more equitable. Are you going to push for the flat taxes so that the taxes will be more equitable; that those in the high brackets don't have to pay for everybody else continuously, as is now the case, while some in the lower brackets are not paying their share? [Laughter]

The President. Thank you for framing the question that way. Most of the people out here have been commenting on that a different way, as if we are making it possible for those in the upper brackets to do better.

That is a thing that we've agreed to look at, to study, in connection with what we think is the top priority in taxes in this country -- is to have a tax system that the people can understand. Our income tax has become so complicated that virtually no one can handle their own tax affairs. And in looking at that, we're going to look at that. We're looking at all kinds of other things. We've made no decisions as yet.

Helen [Helen Thomas, United Press International]?

Strategic Arms Reduction Talks

Q. Mr. President, were you confirming the reports that the Soviets had threatened to pull out of START if we deploy the missiles? And I'd like to know, if they do, what are you going to do about it?

The President. We have only heard that as a rumor. We have no report that that is an official demand of their negotiating.

I've got to get back into the room a little further here.

Tax Indexing

Q. Mr. President, question on taxes. If the Congress tries to repeal the indexation of income taxes, one of your favorite plans, will you veto such a repeal?

The President. I am determined that the two remaining tax cuts of our program will be put in place; that is, the 10 percent cut in July and then the further indexing to stop government from making a profit on inflation because when government does that, it becomes too tempting to government to do the things that create inflation.

Ms. Thomas. Thank you, Mr. President -- unless you want to go on.

The President. Helen said I -- I'm sorry.

Q. Oh, go on. Go on.

Q. Call on the back of the room.

Q. Let's talk.

Q. We like it. We like these.

Q. Second act.

President's Political Philosophy

Q. Mr. President, conservatives say you have gotten too much of a moderate in these 2 years.

Deputy Press Secretary Speakes. Last question. I'm sorry.

Q. Have you really gotten to be too much of a moderate?

The President. I don't know that -- --

Q. Mr. President, you can prolong this if you will. [Laughter]

The President. They tell me that we're going to do this more often, so there will be another chance. I'll tell you, the next time I promise you I'll start at the back of the room and ask the questions coming down this way instead of the other way around.

Q. Mr. President -- --

Q. Did you really mean -- --

Mr. Speakes. No, that's enough. No more, please.

The President. The question was, am I concerned about being identified as looking too much like a moderate? I have to say, you must be doing something right when you're getting rocks thrown at you from both sides. [Laughter]

Q. Did you really mean that the deficit is only a dream now?

Mr. Speakes. Last question. Andrea [Andrea Mitchell, NBC News], you do it every time. I'm sorry. No more.

Q. Thank you, Mr. President.

Note: The President spoke at 11:11 a.m. in the Briefing Room at the White House.