Remarks and a Question-and-Answer Session With Economic Reporters

June 16, 1987

The President. It's a pleasure to have you here today and a pleasure to have the opportunity to speak through you to the America that lies beyond the Potomac. I'm eager to get to your questions, but first let me just speak for a moment about three topics of vital importance.

Venice Economic Summit

First, the Venice summit. If I may, I'd like to highlight the accomplishments of this just-completed summit by harkening back for a moment to the first summit I attended, and that was in Ottawa, 1981. And I'm sure you'll recall when I left for that summit our own economy and that of virtually all the world stood in great danger. We had inflation running at 10 percent in the industrialized countries, not to mention high interest rates, excessive tax burdens, and too much government regulation and interference. And perhaps worse, there was virtually no agreement among world leaders on how to deal with this crisis.

We've come a long way since then, and the American economy leading the way. We started an international movement toward lower taxes and less government interference, toward more economic growth and greater individual opportunity. And last week in Venice, I saw overwhelming evidence that this consensus for less government and more individual opportunity continues to grow throughout the world.

Regarding the sometimes difficult issue of world trade, we made substantial progress in Venice in terms of both the commitment to remove barriers to trade, to work toward removing agricultural subsidies, and of an equally strong commitment to coordinate economic policies to remove some of the imbalances that have troubled the trading system in recent years. This represents further progress on the trade policy that I announced more than a year and a half ago -- a policy that's beginning to turn our trade deficit around. This profound movement in recent years toward more limited government and freer trade has not only kept the global economy moving along at a steady pace, it's made it possible for the democratic nations to stand together and keep our defenses strong, while we promote the growth of democratic institutions in the world spread of freedom and peace.

Arms Control

This brings me to the second point I'd like to discuss: the vitally important matter of arms control or, more exactly and more importantly, arms reduction. As I said last night, with the support of our allies, the United States will also formally propose to the Soviet Union the global elimination of all U.S. and Soviet land-based, shorter range INF missiles, along with the deep reductions and, we hope, the ultimate elimination of longer range INF missiles. I am now directing our INF negotiator to present this new proposal to the Soviet Union as an integral element of the INF treaty which the United States has already put forward in Geneva.

Federal Budget

Finally, I'd like to address a matter that involves domestic politics, but that has worldwide implications -- the Federal budget. As you know, I discussed the budget in my address on Monday night, last night -- including the way in which an unreliable and inconsistent budget process here in the United States can damage the economy of the entire globe. So, for now let me just reduce to three simple sentences what the whole budget issue comes down to: Some in Congress want to bust the budget. I won't let them. And the American people won't either.

Thank you, and now I'd be happy to answer your questions. All right.

Q. Mr. President, Eric Chabrow of the Daily Record in New Jersey. Republican Representative Willis Gradison says that budget reform is an attempt to correct a problem which is basically caused by policy disagreements, not process weakness. Also, House Budget Chairman William Gray says your appeal for budget reform is a smokescreen to avoid dealing with the problems that your policy has created.

Two questions: First, it's not the problem of balancing the budget, it's disagreement over policy -- you favoring no tax increases and more defense spending, while many in Congress oppose, I mean favor, tax increases. And also, how would you respond to critics that say the budget deficit is caused by a lack of leadership?

The President. Well, the need for budget reform is very evident to anyone who's ever been a Governor, as I was for 8 years. And looking at that, and knowing about the other States and the manner in which their budgets are presented, I don't think there's a State that would put up with as Mickey Mouse an affair as we have at the Federal level.

Now, for example, in the State of California the Governor presents the budget. Why is this done? And why is the President required to submit a budget if no one's going to pay any attention to it? Well, the chief executive officer is the head of all the heads of the departments who must run the programs that have been adopted by the legislatures and the Congress. They pass a program, and they say they want to achieve the following goals and so forth. Now, we sit around for long hours here, day after day, and over a period of months every year, in the Cabinet Room with the people who are going to have to run the programs passed by the Congress.

To say that a deficit is the responsibility of the President -- the President can't spend a nickel. The programs are passed; the money is appropriated by Congress. But now the people that have to run the programs come in with the figures that they say they can achieve the goal of the program passed by Congress for the following amount. That's put together and finally sent up to the Congress. And the Congress -- who don't have a thing to do with running the program, who aren't the managers of those programs, who don't know what the administrative problems are or anything -- the Congress says: ``Why, we're not going to pay any attention to this; this is dead on arrival.''

And they then sit down and, without any knowledge or experience in running the programs, they set down the figures that they say should make up the budget. And when it comes back down, the President, in this case, has only one choice. He can veto the entire budget and the Government grinds to a halt and the checks stop going out -- no one's paid and so forth -- or he can, as he has to, accept it.

Let me contrast that if I can and take a minute to tell you what happened when you were Governor of California. Same thing happened with the Governor presenting the budget. And it had to be a balanced budget within the figures that were projected for the revenues of the coming year by a combination of private individuals and public. And never, in 25 years, had that group ever missed by more than 1 percent on their estimate on what the revenues in the following year would be.

Now, the Governor sends the budget up. The legislature must approve it by a two-thirds majority. They can take out things that the Governor has put in. They can add in things of their own. Two-thirds majority passes it on, and as of a certain date -- and they never can miss the date -- it comes back to the Governor. The Governor cannot put back in anything they have taken out. But the Governor can line-item vetoes of those things they have put in. And then, if they feel strongly enough about it, by a two-thirds vote, they can override his veto.

In 8 years, I line-item vetoed 943 such items. And never once did the legislature that had passed those budgets by a two-thirds majority ever put a two-thirds majority together to override my veto. Why? Because they could vote for things that were buried -- pork items buried in the whole budget. When they were revealed and stood out there all by themselves, and they had to vote for them, they couldn't get two-thirds that would do it. This is what I say is why there just is no process here. We need, first of all, a constitutional amendment that -- just like most of the States have -- that the Federal Government cannot deficit spend. And we need the line-item veto that 43 Governors in this country have. That's what's wrong with the system.

Q. Mr. President, Senator Baker has told us you are about to take this issue on the road -- the budget deficit and the budget. How can you take it on the road without having to blunt the political skeptics who say the President has to take an issue somewhere that will get the spotlight off the Iran-contra hearings here in Washington -- he has to take a significant issue to get the spotlight out of here?

The President. I think that spotlight has been growing so dim in recent days, that when you get a mile and half away from the Potomac River, there are an awful lot of people that have gone back to their favorite television shows. And I don't blame them. I've never heard so much hearsay in all my life that wouldn't be permitted in a courtroom for a minute and a half, and it's taken as gospel by those who want to go farther with this.

But I shouldn't get lost in that. No, the budget has been one of the most important things in my mind from the moment I came here. I inherited a situation in California when I became Governor, pretty similar to what I inherited here, with regard to the economy. Only there, the deficit had been hidden by bookkeeping tricks because the constitution of the State of California said there couldn't be a deficit. But you come in as a new Governor in the middle of the year, and you've got 6 months before the end of the year. And because of the constitution, I had 6 months in which I had to do something about that tremendous deficit that was hanging over the budget. The constitution said, come the end of the deficit year -- it's got to be balanced.

Well, from the experience that we had there and the things that we did, I came here with some ideas that I thought would be beneficial. We have been deficit spending for more than a half a century. And for 46 out of 50 years, the Democrats have had a majority in both Houses of the Congress. And when some of us out on the mashed-potato circuit complained about the deficit year after year after year, we were told that it didn't matter -- we owed the money to ourselves, and deficit spending was necessary to maintain prosperity.

Well, I'd be kind of being an ``I told you so'' if I told you that I made speeches 30 years ago in which I said they could not go on without one day the deficit going out of control. Well, in the 15 years from 1965 to 1980, the budget of the United States multiplied to five times what it had been, and the deficit multiplied to 38 times what it had been. And it is out of control, and it's structurally built-in. I'm talking too much on some of these.

Yes?

Tax Reform

Q. Kay Mann, from Milwaukee, Mr. President, Channel 6 from Milwaukee. Many people in Milwaukee are concerned because there are folks in Congress, including Republicans, who believe that excise taxes on products like cigarettes and beer and wine and other goods would be an effective way of fighting the budget deficit. Are you willing to fight excise taxes? And particularly, I'm interested in beer, because beer, as you know, is produced in Milwaukee.

The President. Yes. I'm opposed to taxing for this problem, or the solution to this problem, because if you look back in history, every major tax decrease has resulted in more revenues for the Government at the lower rates because of the stimulant to the economy. I believe the 54 months of recovery that we have had now, from the mess we inherited, is based on the changes we made in the tax policies.

When John F. Kennedy's tax program, that he recommended and which was not too dissimilar to ours -- when it was passed the same thing happened -- more revenues at lower rates. It happened back in Coolidge's administration, and they cut the taxes several times in that period. I can show you again where tax increases have resulted in lower revenues for the Government because of the harmful effect they have on the economy by reducing incentive and so forth.

So, what I have said about taxes is that unless we do the job of cutting the spending that has to be cut and getting government back to the point in which we can say: Now, there is no way that you can cut beyond this point -- these are the legitimate functions government must perform -- then, if you find that the revenues do not equal the percentage of gross national product that the spending does, then would be time to look at a tax so that you are even.

We're taxing at about the same level that has always been normal in this country -- 19 percent of gross national product are tax revenues. But we're spending 24 percent of the gross national product, and that's what's wrong. Now, to take Congress off the hook and give them more taxes, they'll just do more spending. You've got to force them and get back down to where we say this is it, now government is as economical as we can make it. And then if it isn't -- the taxes aren't enough -- then you look at getting more revenue.

Administration Credibility

Q. Mr. President, Marty Sender, Channel 7 in Boston. Democratic Presidential hopefuls, like Governor Dukakis in Massachusetts, are going around the country campaigning on the issue of integrity, implying that your administration doesn't have enough of it. How do you defend yourself, sir, against these implications, when many see patterns of deception in your administration, against implications that the integrity of your administration is not what it should be?

The President. Well, I don't think there's anyone that's ever been in this job, ever, that has not gone to bed every night knowing that with the thousands of people that are out there, there could be somebody that's breaking the rules someplace. And you try to get at that and do something about it. But I challenge that there's been no violation of integrity in our administration, and I have tried to keep every promise that I made, and have kept a lot of them.

And I don't see how they can go around denying what has actually happened since we've been here. Interest rates were over 20 percent -- the prime rate -- when we came. Double-digit inflation was 13 or 14 percent. We know what the tax structure was; unemployment was high.

Today we have a higher percentage of the employment pool, potential employment pool, employed than ever in our history. The interest rates, we know, are down. Inflation has come down to less than 4 percent, after all of the years of having this rate of inflation. In fact, it's come down to lower than that until just recently because of fuel prices. I say that what they're doing is pure demagoguery.

Q. But, sir, over 100 members of your administration have left under some sort of cloud or scandal. That's what they're campaigning against.

The President. Yes, I remember when [former Secretary of Labor] Ray Donovan left, and I remember his sizeable plea the other day -- now, how does he get back his reputation? A number of people in our administration -- there have been things that have been uncovered by someone, let's say, that -- in the past, before they ever came here. But isn't it the very fact that we are uncovering, if there's something going wrong and something being done about it? We're not covering it up or hiding it.

Q. Mr. President -- --

Ms. Mathis. Last question.

Debts of Developing Countries

Q. Mr. President, John Slack, from Boston. I don't really care to ask you if you've stopped beating your wife, Mr. President, but I would like to ask you an economic question. We didn't hear much from the economic summit in Venice about whether the leaders of the free world are really concerned about the deep threat to democracy that's posed by the heavy debt burden the LDC's are under. Is there any sense of urgency about this Third World debt, especially here in Latin America, and doing something about it -- a la a new Marshall plan?

The President. There was very much said about it, and it will now proceed with the other people in our administrations and the people concerned with that. Finance ministers and so forth are going to go forward looking for things we can do. For example, just one thing to throw out here that was discussed and that should be looked at -- the inability of some of these developing countries to pay back a debt to private banks.

Well, some of those banks have already transferred the debt into equity. Now, a number of those countries, those emerging countries, started out following statism. They organized at the top, and the government ran things. And this meant that there were nationally owned businesses and industries and so forth.

Well, if a bank takes over and accepts equity in one of those nationalized industries or businesses this is much the same as outside capital coming in. And no country has ever become great that didn't import capital and people. Then you suddenly have got a privatization, and you've got enlightened leadership here running it. And this can begin to help them because a great many of those countries are beginning to realize the faults of statism and are trying to move more toward the private sector. This is -- I'd just like to tell you -- this is one of the ideas that came into the discussion. It was discussed, and we are proceeding now through our ministers.

You see, the economic summit isn't a thing in 3 days. And this is why for 7 years I've -- as I said last night -- 7 years, I've always heard the same story: Nothing happened at the summit. A lot happens at the summit. But it isn't as if you were going to, say, the summit with Gorbachev and a treaty on arms to be signed or not signed. You go there and deal with all these problems and then make decisions that will be followed up, such as the one on agriculture and agricultural subsidies. And we pass on now to the Uruguay meetings that are going to be held, this problem that must be resolved. And we can agree on what we want accomplished, but there are a lot of technicalities involved that you now turn it over to the working staff for them to come up with how we can -- without pulling the rug instantly out from under farmers who have become used to this -- how we can get farming back to the marketplace for the determination of prices and production.

Q. Mr. President -- --

The President. She told me that I've taken the last question here. How come there are so many hands left and I always -- [laughter].

Q. One more?

Q. One more?

The President. Would you permit one more?

Mr. Baker. Yes.

Ms. Mathis. Oh boy -- I'll let him make the call.

The President. Can I?

Mr. Baker. Sure.

The President. Yes, way back up over there. I haven't gone very far into the back. I've been down front here.

State and Local Taxes

Q. Thank you, sir. Mark Fryburg, WBTV, Charlotte. When you take your proposal for budget reform on the road, if you come near Charlotte, you'll see people who've seen all these wonderful economic developments in 5 years and the deficit spending hasn't seemed to hurt them. At the same time, they're being told their local taxes are going up because Federal spending is going down. How are you going to persuade them?

The President. Well, for one thing, part of our whole reducing of the size and the power of the Government, under what we've called federalism, actually was a case of returning tax resources to local and State government at the same time that we gave them back responsibilities that we don't think belong to the Federal Government. Now, the Federal Government's whole history, dating back to the New Deal -- and I was a New Dealer then, out of the Great Depression -- the whole history was one of the Federal Government usurping functions that belonged at the local level. But they did it on the basis of first, they usurp the money. The Federal Government used to only take, well, about a third out of the total tax dollar, or less.

And then, suddenly, the Federal Government became the major taker of tax dollars, leaving very little to the States and local governments. And they, in turn then, had to turn to the Federal Government for help because they no longer had any sources they could go to for further taxing. We've tried to reduce that and give things back to the State level and, in turn, to the local level that belong there. And at the same time, give back to them, by the lowering of our taxes at the Federal level, the ability to -- if they need a local tax for some local function there -- to do that, to raise that tax.

Some figures that came up the other day and we used at the summit and that I used in the speech last night -- the one I could remind you here -- our system of government differs so from the others that in 1983, the deficit was 6.3 percent of gross national product. It's now only 3.9 percent of gross national product, but that's the Federal Government. And you compare those percentages to European countries, and they seem to see us as much heavier in debt than they are.

But they count differently than we do. They count the total cost of government, all government and all taxes, and figure out their percentage. Well, if we do that in the United States, our deficit is only 2\1/2\ percent of gross national product because the States and the local communities are in a lot better shape generally than the Federal Government is. Well, no, they tell me I can't take any more. If you'd like to write me a letter with a question -- [laughter] -- I'll guarantee you an answer.

Reporters. Thank you.

Note: The President spoke at 11:30 a.m. in Room 450 of the Old Executive Office Building. Susan K. Mathis was Special Assistant to the President and Director of Media Relations. Howard H. Baker, Jr., was Chief of Staff to the President.