We worked hard during the campaign of 1984, you and I. There were funds to be raised, voters to be registered, rallies to be planned, and speeches to be given. By the way, I can't help but recalling that at about my 10th or 20th speech that I was reminded of something an old boss of mine once said, that was Harry Warner of Warner Brothers, when I was under contract there. And back during the twenties when sound pictures were just coming in, when the ``talkies'' were coming in, Harry Warner demanded to know who the heck wants to hear actors talk? [Laughter]

While I was taking our message around the country, you were taking it to the most important level of all -- the grassroots. And that message, that historic message, went like this: Four years before, when our party had first won the White House and the Senate, we'd inherited the disastrous results of two vast and prolonged experiments.

The first experiment, a domestic endeavor, had begun during the thirties and had been renewed on a massive scale during the sixties. And based upon the premise that the answer to virtually every problem was government intervention, this experiment involved an ever-growing tax burden, an endless proliferation of government regulations, and a Federal budget that took in more and more of our gross national product. By the late seventies, the results of this domestic experiment had become clear. Inflation was spiraling up at double-digit numbers, interest rates were sky-high, and the basis for sustained growth in our economy and standard of living had been undermined.

The second experiment had involved foreign affairs. We'd allowed our military capabilities to erode. Indeed, with regard to the Navy alone, by 1980 our fleet had fallen from nearly a thousand battle-ready ships to fewer than 500. And then we had waited for the Soviets to demonstrate their good faith by doing the same. We're trusting souls. [Laughter] The Soviets, however, had embarked upon the biggest arms buildup in the history of the world. And while American liberals had treated the realm of foreign affairs like a dream world, the grim realities had been felt in places like Afghanistan and Poland.

But our administration, we told the people, had brought those experiments to an end. In foreign affairs, we'd begun the rebuilding of our military. We had boldly restated the fundamental, moral difference between democracy and communism. And in 1983 we had begun the Strategic Defense Initiative, an initiative aimed at knocking down weapons, not people. Here at home, we'd weeded out needless regulations, supported a sound monetary policy, and enacted an across-the-board cut in personal income tax rates of 25 percent. By mid-1984 our economy had been expanding for 19 months, our gross national product was soaring, productivity was up, interest rates were down, and inflation was headed toward the lowest level in over a decade.

We took this message to the people, and we asked them to make a fundamental decision: Forward or back? Our opponent, you may remember -- I said may remember -- [laughter] -- actually promised the American people that he would raise their taxes. He told the people that we wanted to reform the system to make tax rates even lower -- we told you that, not he. Well, spreading that message was exciting, but exhausting. And on this date 1 year ago, we'd given it everything we had, all of us in this room. There was nothing to do but wait. And by the wee hours of the next morning, we'd heard the final news. My friends, I'm sure you'll agree, 49 out of 50 ain't bad. The American people had answered loud and clear: Forward, full throttle, to more limited government, stronger defenses, and still greater economic growth.

With your help, we've worked hard to put that mandate into effect in this second term. In foreign affairs, we're determined and strong. Indeed it's precisely because of our continued strength that the Soviets may well prove ready to engage in a genuine give-and-take at the upcoming meeting in Geneva. And permit me to add that -- as we made clear just last month -- the United States of America isn't about to be pushed around by the nickel-and-dime cowards who commit acts of terror.

In domestic policy, we continue to face two great challenges, two challenges on which our administration will continue to need your help. The first is deficit spending. This autumn the Congress has faced the unhappy task of raising the debt ceiling to over $2 trillion. With only a few days left before that deadline, Congress must realize that by failing to act they're entering very dangerous territory. Already they have forced us to redeem prematurely the Social Security and other trust funds in order to make payments to recipients. Never before in our history has the Federal Government failed to honor its financial obligations. To fail to do so now would be an outrage, and the Congress must understand this and bear full responsibility. And the final date is the 15th of this month.

But there's hope. By an overwhelming vote the Senate has initiated the Gramm-Rudman-Hollings amendment, a bipartisan measure that would lock the Federal Government onto a path to eliminate the budget deficit in 1990. And to protect that achievement, I will ask the Congress to enact a balanced budget amendment to the Constitution to take effect in that break-even year. The reason that I so strongly support the Gramm-Rudman-Hollings proposal is that it attacks budget deficits the right way -- not by raising taxes, but by restraining spending. It will enable us to enforce spending restraint while at the same time we honor our commitments on Social Security and defense.

Just last week the House produced a version which, unfortunately, missed the opportunity. But I believe it's essential that the House and Senate agree on a version of Gramm-Rudman-Hollings that provides for an assured path to a balanced budget without tax increases and without attacking our defenses. We agreed with the Congress in the budget resolution to the 0 - 3 - 3 arrangement on defense spending, and we expect them to live up to it; 0 - 3 - 3 means that in 1986 defense spending will be zero as to real increase over 1985. It will, however, be allowed the difference in inflation. And 3 - 3, those 2 years, there will be allowed a real increase in defense spending of 3 percent each year.

Now, this brings me to the other great challenge -- tax reform. Yes, tax reform has its ups and downs -- so do all proposals of consequence. But to paraphrase Mark Twain, reports of its death are greatly exaggerated. You see, the American people, I believe, want tax reform; many Members of the Congress want tax reform; and it so happens that this administration, over-whelmingly sent back to office 1 year ago today, wants tax reform, too. Tax reform is very much alive on the Hill, and I'm convinced we can get it and get it this year. But once again, we'll need to turn up the heat. Can I count on your help to do that? [Applause] All right. We need the kind of tax reform that we originally proposed and not with some of the waterings down that are taking place as they discuss it up there.

My friends, these are historic times for the Republican Party and the ideals that unite us. On every front, from foreign policy to education to economic growth, it is the Republican Party that is moving forward with intelligence and vigor. Our numbers are growing; indeed, for the first time in 27 years, back in my home State, as many Californians consider themselves now Republicans as consider themselves Democrats. I remember 8 years when I wished that had happened then. [Laughter] And in the country at large, the polls show that we hold a commanding lead among Americans between the ages of 18 and 24. We hold a lead, in other words, on the years ahead.

Not too long ago, sitting where you're sitting were 150 officeholders, elected officials from all over the country, who had all, since their election, switched from being Democrats to being Republicans. It was quite an inspiring gathering. So it is that we stand poised to become the party of the future and party of ideas, the party of a new and durable governing coalition. All this -- all that we've accomplished, all of our noble hopes for the future -- has been built by your intelligence, dedication, and willingness to give and to work. Each of you is a participant in history, and from my heart, I thank you. I know George [Bush] has already told you how much he appreciates it. God bless you all, and now some of us are going to go back to work.

Thank you.

Note: The President spoke at 10:46 a.m. in the East Room at the White House.