I'd like to devote the bulk of our time together to answering your questions. First, however, permit me to say a word about the budget and then about our major new domestic policy initiative -- the effort to institute a fair share tax plan. Once again it seems that the budget process has broken down. Growing deficits appear to have made virtually no difference; for too many in this town, it's still business as usual. They're a little like sailors on a ship adrift, painting the gunnels and polishing the brass, but ignoring the broken rudder.

The main problem lies in the House, which has proposed a budget that juggles funds back and forth between accounts, invents savings, and simply wishes away massive costs -- a budget that would be laughed at by bookkeepers in any well run shop or business in the country. What the House Budget Committee calls a defense spending freeze, moreover, is really a deep cut. It would require us to scale back our spending on research and development, construction, and procurement by 19 percent next year, 23 percent in 1987, and 28 percent in 1988.

The Senate, by contrast, has to its credit proposed a budget that is responsible and fair, that at least holds real defense spending constant, and that makes the structural changes in domestic spending that will help us to grow out of these deficits. But when representatives of the Senate and House met in conference, it quickly became clear that certain Members of the House still refused to consider real cuts in domestic spending.

My friends, I can promise you that this year things are going to be different. By cutting taxes and forcing down inflation, we've created new growth, new jobs, and hope. And after so much progress, I flatly refuse to be cornered into a choice between a budget that undermines our national security and a spending spree that threatens our prosperity. Together, Republicans and Democrats must make genuine cuts in domestic spending. And to see that this finally happens, I'm willing to go to the American people again and again.

Turning to our tax plan, when the income tax first became law back in 1913, the tax code ran to 15 pages. Today it adds up to 4 volumes and more than 4,000 pages, and one standard interpretation of the code runs to 18 volumes and requires some 6 feet of shelf space and weighs almost 90 pounds. The complexity is staggering, but the injustice it engenders is worse.

Each year, countless Americans pay more in Federal income taxes than the giant corporations they work for. Some wealthy individuals write off ocean cruises as educational; others deduct expenses for sky boxes at sports events. And with our steeply progressive tax code, working men and women struggling on behalf of their families find that the Government lays claim to a bigger chunk of each new dollar they earn. And for them, making economic progress is like climbing a wall with no ladder.

Our tax code has become in a fundamental sense un-American, and I mean that as a serious, moral, and economic assertion. Americans are an expansive and optimistic people. We constantly seek opportunity and work to better our lot. Yet our high marginal tax rates discourage risk-taking, savings, and work and thereby smother growth. Most Americans are straightforward and honest; yet our tax code constitutes one of the most complicated and convoluted legal codes ever devised. Americans look to the future, and yet we're weighed down by a tax code that is the result of decades of political deals that's become the very embodiment of the dead hand of the past. No wonder the underground economy is so big and thought to be growing. Americans today feel an abiding disappointment, even disgust, with the taxation that represents that most basic transaction between the Government and the people. My friends, this is no way to go about building economic growth.

Maybe it has to do with our early history as a nation of farmers, but when we Americans see a problem, we solve it. If there's a stump in the field, we hitch up the tractor and haul it out. If a new barn needs building, we gather together and raise it. And when we have a mess as big as the tax code that stifles growth and undermines our self-respect as a people, then forgive me, but it's time to clean out the stalls and put down fresh straw.

Our fair share tax plan for America would give families a dramatic benefit by nearly doubling the personal exemption to $2,000. This would mean that an income well into the $25,000 to $30,000 range -- a working family with two or three children would pay an effective tax rate of less than 10 percent. Perhaps the central idea in our proposal is this: By curtailing loopholes and eliminating deductions that are only used by a few, we can lower marginal rates sharply, increasing the rewards for savings, investment, and good, hard work. In other words, a fair share tax plan is a progrowth tax plan. Lower tax rates, a near doubling of the personal exemption, and an end to unfair deductions -- what it adds up to is simple justice, more jobs and renewed hope for our own future and that of our children.

A great deal has been said about a timetable for passage of our proposal. Well, my own idea is simple: By Thanksgiving Day of 1985, we should cook our turkey of a tax code and get our tax reform passed by both the House and the Senate. Then, by Christmas Day, America's new tax plan should be signed into law and presented to the people as the best gift of the year.

So, thank you. And, now, I know some of you may have some questions and -- yes?

Tax Reform

Q. Mr. President, Bill Glass from KPRC - TV in Houston. Thank you for the opportunity to ask you about something that's of great concern to people in Houston, where we are suffering an economic situation because of our oil-based economy. People are wondering how your tax plan is going to impact that industry in Houston and whether it's going to help or hurt our much-looked-for recovery?

The President. We believe it is not going to hurt. There have been some changes. We're phasing out the tax plan now -- I can't think of the right word that I want for it -- but the depletion allowance. But except for wells that are producing 10 or fewer barrels a day, to keep them in existence, from not shutting down -- but we also are keeping the tax breaks that come for exploring and finding -- the deduction of the intangibles and so forth. Because we think that is our real problem, is to make sure that we do not make it uneconomic to continue to explore. Half of our trade deficit today is the need for us to buy oil outside our own country. So, the more production we have here, the better off we think we are. We don't believe that it is going to militate against the industry.

Q. Mr. President, Kevin Culp from Chronicle Broadcasting. I am here representing our station in Omaha, Nebraska, and the farmers in Nebraska say that they're concerned about something called farming the tax code or tax farmers; that is to say, people who invest in agriculture for a tax writeoff rather than for the product from the land. And they seem to think that your tax reform proposal doesn't go far enough to stop this kind of thing that they say is driving commodity prices down. Do you think that your tax reform proposal does go far enough, and would you consider any additional ways, and what do you think of the whole idea of tax farming; that is, investing in agriculture for a tax writeoff rather than for the product?

The President. Well, of course, we are pretty strict now, and have been for some several years, about hobby farms as versus real farms. I've had some experience with that; I've had a ranch for years. I can remember when it was deductible, and it isn't anymore.

No, we think that the best thing that we can do for the farm economy -- and I grant you, there's going to be some disruption in doing it, and we don't mean to pull the rug out instantly. We think that government itself created the bulk of the farm problems with programs that were well-intentioned, but programs that encouraged people to farm even if there was no market for their product. We would like to feel that we could get farming back into the open market. And we can point to the fact that that part of farming that is and has always been in the open market has never had the problems that the farms -- that in the part of agriculture that is government-regulated and with quotas and all that sort of thing -- that it seems to be the one that has the most problems. And I think that we are taking some steps that are going to make the tax farmers have to look elsewhere because one of our aims in this tax reform plan is to eliminate some of the so-called tax shelters that have been designed not to raise crops particularly but to give a tax writeoff.

Q. Mr. President, do you think that Governor Mario Cuomo of New York is attempting to turn your fair tax program into a political issue?

The President. Well, I don't know what his motive is. I wouldn't ascribe any motive to him. I'll let him have that. But I know that he's been very vocal, particularly about the nondeductibility anymore of local and State taxes. And at the same time, he couples that with charging us that we're, once again, doing things for the rich. Well, I'd like to point out to him that less than a third of the people in this country itemize, and they are the people with the higher incomes, the so-called rich. They are the ones that benefit from the present tax deduction of State and local taxes. More than two-thirds of our people who don't deduct, who don't itemize on their bills, they get no benefit from that deduction at all. So, we don't see that we're doing any harm in taking it away.

The young lady right there.

Q. Mr. President, Patti Suarez, KWTV, Oklahoma City. There's a lot of talk about revenue neutrality. Some Congressmen are saying that your plan may fall anywhere from $12 billion to $20 billion short of revenue neutrality. My question is: Intangible drilling costs -- might they still be sacrificed to keep it revenue neutral? Are we going to keep intangible drilling cost deductions?

The President. I would object to that because I think it would be counterproductive to an industry that is very important. The exploring for oil is not done by the giant oil companies. The exploration is done by independent people who are out there, the so-called wildcatters, doing this. And we want them to keep on doing it. So, no, I don't feel that we should. And as to that estimate that we're going to fall revenue short, I happen to think that some of those people are the same ones that estimated when we started our economic recovery program in 1981 that it wasn't going to work. Matter of fact, they named it Reaganomics, and it was going to be a failure. Well, it's a success, and they don't call it Reaganomics anymore.

Yes?

American Hostages in Lebanon

Q. Mr. Reagan, Mike Olszewski, WERE Radio in Cleveland. Some families of the seven hostages still in Beirut have expressed interest in meeting with Syria's President in hopes of getting his help in securing the release of their loved ones. I'd like your opinion on that move, also your opinion of Florida Congressman Dan Mica's bill to provide compensation to Federal employees who fall victim to terrorism abroad.

The President. Well, to the first question here, I can't deny them if they feel that they want to try this and it could be of some help. Certainly, we would never interfere with that. But I do want everyone to know that -- because there's been some talk here and there, and even some of them out of their frustration and grief have said, out of sight out of mind -- that isn't true. There has never been a minute from the first kidnaping on that we've not been doing everything we can. Our great problem is the secrecy, the inability to locate and find. Are they being held by one group all together? Are they separated?

We have reason to believe now, from some of our intelligence gathering, that they are being moved around quite often. And our difficulty with taking some action is the very fact of their lives. And we're continuing, and we meant it when we tried our best to get them included with the 39 that came home. But evidently, they're in the hands of others not having to do with the same hijackers as this last time. We are continuing, we're using every effort we can to bring them back. And yet we do know that there is a threat hanging over them and that we must be very careful and not precipitate that threat being carried out.

You've -- all right -- [laughter] -- --

Federal Budget

Q. Marlene Schneider, WFSB - TV, Hartford. I'm told that you are going to be having a meeting later this afternoon with the top leaders in the House and Senate on the budget impasse in conference, and I am very curious as to what exactly you are going to say to them.

The President. I'm going to be rather firm. [Laughter] And I'm going to say that this is a time to forget the 1986 election and partisan differences, that we've got a job to do, and the job to do is to make this country solvent again and to get the deficit eliminated. And that's what it's all going to be about.

Q. Do you think they're going to be listening?

The President. I'm going to try to get their attention. I've -- because I had called on you, yes?

Q. Thank you. I wanted this red suit to work. [Laughter]

The President. I heard that there were red suits in the room.

Farm Legislation

Q. Nancy Chandler from KMTV in Omaha, Nebraska. Again, I have a lot of rural people who I speak to, and they are saying this tax code isn't going to expire. The tax laws are going to continue through into 1986 if we don't change the tax code -- our farm bill does not. Do we go back and go with the policies of the past, or can we expect the President to step in and also urge the House and the Senate to pass a new farm bill in -- [inaudible].

The President. Yes, we are working on a farm bill right now. We can't just shove everything aside and say only the budget and the tax plan are all we're talking about. There are a number of legislative matters that are all of vital importance.

Ms. Mathis. One more question.

The President. Oh, always happens to me. [Laughter]

American Hostages in Lebanon

Q. Russ Garrett, WICC Radio, Bridgeport, Connecticut. Congressman John Rowland of Connecticut has proposed a rescue mission for the seven hostages if all else fails. How would you react to that, sir?

The President. Well, my reaction -- I think I, in a way, answered it in what I said earlier about them. The situation is: How do you rescue someone if you don't know where they are? How do you rescue them if, at the same time, you would have to reveal yourselves to the point that you might be bringing home a body instead of a human being? And this has been our great problem all this time and long before this particular hijacking took place, is, as I say, the trying to learn where, and are they together, are they one or separate? And unfortunately it just isn't that easy to find out. We've had suspected targets over there, but, again, no knowledge that we could take an action that would not result in their death. And we're going to do everything we can to see that that doesn't happen.

But, as I say, we're continuing our efforts, and we have to feel that the success that we've had this time and part of our problem is -- and I think all of you can understand this -- part of our problem is we can't answer all your questions on these particular subjects because we can't say what we're going to do next Thursday or there might be someone on the other side that's a little uncomfortable about that. So, we just have to tell you that we're using everything that we know and everything that we have on this entire subject, but we can't talk specifics.

Ms. Mathis. Thank you.

The President. But, again, they've told me that's the last one I can do. I'm sorry. Thank you very much.

Note: The President spoke at 1:10 p.m. at a luncheon in the State Dining Room at the White House. Susan K. Mathis was Deputy Director of Media Relations.