 I still say a spoon and a glass, thank you, Strom, is the loudest noise in a dining room. Well, good morning, all of you. And listen, if you're still eating and drinking your coffee, you go right ahead. I can talk over it. As we start this new session of Congress, I wanted you to hear firsthand from me that number one priority for 1986 is to maintain Republican control of the United States Senate. Now, we do have a lot of challenges on both the foreign and domestic fronts. Yesterday, your leader Bob Dole called for a renewed working partnership between us, yourselves and House Republicans. And I couldn't agree more. I believe that working together we can show the American people that this Republican leadership team continues to produce results. Our economy continues to grow and our alliances around the world are stronger than ever. And as you know, in a few weeks, I'll be sending you my budget for fiscal year 1987. It will meet the requirements of the Graham-Rudman-Hollings Act. It will meet the target of a $144 billion deficit. But my budget will not raise taxes. It will not hurt the aged and needy. And it will not cut into the ability of our nation's defenses to protect our national security. I want you all to know too that I do want a reconciliation bill. We're disturbed by many provisions included in the reconciliation bill, and in its present form that bill continues to be unacceptable. Reconciliation should be a means to make savings, not to slip policy changes into law which couldn't survive the normal legislative process and not to add funding when we have a $200 billion deficit. Jim Miller will continue to work with you and I'm hopeful that we can get an acceptable bill worked out. And as you know, tax reform along with deficit reduction remains our top domestic priority. We want a revenue-neutral tax reform bill as soon as possible. And we're encouraged that Bob Dole and Bob Pack would have said we could have a bill through the Senate by June. The House passed bill is not the final product. It's only a beginning. The House bill lowers individual tax rates to their lowest level since 1931. Corporate tax rates are reduced to their lowest level since 1941. 93% of all taxpayers would be in the 15 or 25% bracket. 88% of all taxpayers at every income level would receive a tax reduction or experience no change in tax. Median income families of four would receive substantial tax relief. The largest percentage reductions in taxes would be received by low and middle income workers or taxpayers. The personal exemption and standard deductions are increased substantially. And millions of working poor would be removed from the tax rolls. However, that's all I'll say on the good side. We do believe more debt needs to be done to achieve true tax reform and that's where you're going to come in. The improvements that we'll be looking for in the Senate include a 35% top rate, a $2,000 personal exemption for at least low and middle income families, tax incentives which lower the cost of capital. I know that some of you are interested in pursuing a value-added tax or a business transfer tax. But I strongly oppose the inclusion of a value-added tax in the tax reform bill. This type of new tax has a number of obvious problems and would be extremely controversial. It would open a Pandora's box of federal spending. There wouldn't be enough time for the kind of debate necessary for such a major step and for us to meet our schedule. We're convinced the American people want true tax reform. The House has taken a good first step and we look forward to working with you to produce a true tax reform bill. Turning to foreign policy matters, I'm going to say that this is a year of great opportunity. The arms control negotiators are back at the table in Geneva and we continue to plan for Gorbachev's visit later this year. Make no mistake about it, however, my ability to succeed in that meeting will be directly affected by Gorbachev's perception of our global position and internal solidarity. We already see indications that Gorbachev is watching to see how our budget process plays out. If we retain our commitment to rebuilding our defenses to the Strategic Defense Initiative, to freedom fighters, to isolating radicals like Qaddafi, to adequate security assistance to friends in vital parts of the world, we have a strong chance of making new gains. But without your help, you can't succeed. We must also devote great effort to sustaining and promoting democracy. We have a success story in this hemisphere, but our accomplishments could be endangered if we fail to deal with the Nicaraguan threat. And this is one the Soviets are watching closely. We're studying carefully the question of level and type of assistance for the Nicaraguan resistance. And I can tell you things that we are taking into consideration. The Sandinistas have gone from bad to worse. Their internal depression or repression has increased. They have become more blatant in intimidating neighbors and helping subversive groups and their military buildup continues. When we talk about helping subversive groups, I can assure you that there is no question anymore. The evidence is there. They are continuing to furnish materiel, weapons, ammunition, and other supplies to the guerrillas in El Salvador. The resistance has grown in Nicaragua, the Contras, it now has 18,000 armed men, and it's been operating effectively in areas deep inside Nicaragua. But the resistance faces increasingly sophisticated Soviet-supplied equipment, attack helicopters, radar, much of it operated by Cubans. We need to help the freedom fighters deal with this challenge. You can't fight attack helicopters with humanitarian aid. We can't walk away from this one. Consolidation of a Soviet-aligned regime on the American mainland would be a serious strategic threat. If the pressure on Sandinistas is not maintained, they could destroy everything we've accomplished in El Salvador and elsewhere. The new government in Honduras wants to cooperate on this, but they want to see the resistance growing even faster. They also want the program to be a covert one. We'll consult closely with you to determine the precise shape of the assistance package, and we won't send up anything that surprises you. Turning to a different part of the world, supplying badly needed defensive arms to countries like Jordan and Saudi Arabia makes sense. It creates ties and cements influence that will stand us and Israel well for years to come. And this is also a matter on which we'll need to consult closely. We recognize the difficulties of going forward in the absence of new progress on the ground. But we have to find a way to give some support to King Hussein and stay engaged with this important moderate country. The U.S. commitment to Israel is rock solid. We will maintain Israel's qualitative military advantage over any combination of potential adversaries. There is no sale of a major new weapons system for Saudi Arabia under consideration at this time, but we have a long-standing security cooperation arrangement with the Saudis, which it is in our national interest to honor. We've got a full agenda for 1986. I know that Bob already has you hard at work on the Conrail legislation, and I urge your support for our efforts to get the government out of the railroad business. It never has been successful all the way back to World War I. I've talked too long, and now I want to hear from you, but I want to say again that if we work together, we'll be successful in our legislative efforts and at the polls in November. So I think it's time now for a dialogue instead of a monologue, and Bob, let me call on you first. I advise there are 47 or 48 Republicans here, which isn't bad for the first week of this session, in the means of all beer tomorrow for the closure vote. I appreciate that very much. But I think our strength in 1986, and I think we are going to have a very good year, in fact, that we're working together. And I see every side of that. Obviously we may have differences from time to time with each other, and maybe rarely with someone in the White House. But rarely. Doesn't have to be often. But in any event, I think the only real hope the Democrats have in 1986 is somehow to divide and break up and try to make it appear across the country and our own states, that somehow we're not working with the President of the United States. We recognize, Mr. President, that you're our number one asset, whether or not we retain the Senate in 1986. As we gain the Senate in 1980, we'll depend upon our working relationship with the most popular president in memory. So we're here to do that, and we want to cooperate. I believe this is an auspicious start. Here we are, back to the second day. An option to ask questions. And I'm going to turn it over down to my colleagues. I think the last time I counted, everyone was for tax reform. I haven't counted this year, but I think it's there. I think we can do these things. They're very difficult. They can take a lot of doing. Some of our colleagues have different views. We want to thank you, Mr. President, the Vice President, the members of your staff for helping us, and we're going to do what we can to make certain in the last two years, your second term, you're not punished with a Democratic Senate. All right. Yes, Bob. Mr. President, I want to make sure I understood what you said. There was a tax reform, a value added tax, and a business transfer tax. I want to separate the tax reform bill from the budget next year, because people are saying, no, you've got to have a tax increase in the budget, and you say, no, that is a different item than tax reform. You want that bill revenue-neutral, and you do not want to use a business transfer tax or a value-added tax or some variant thereof to pick up revenue, which would then be used to offset some other capital formation devices. Those are a no-no in the tax reform bill. Is that correct? Well, that was, yes. Okay. All right, someone else? Don't tell me what... I'll just follow up on that question. There have been discussions about taxes like oil import fee and the like, and I understand as part of deficit reduction you were opposed to that last year. Do we understand you would not want that kind of tax in the tax reform package to offset and make the bill neutral? Well, since we had turned in the first one that we turned in didn't have to call for any new kinds of taxes. I just think that in the tax reform, the tax reform bill, we've got a cynical public out there that always believes that tax reform is hiding a tax increase of some kind. And I just would like to see us keep that totally apart and separate from any revenue needs. Yes, I think we can do it without an added tax on there. I gave some figures to some of you the other day, yesterday, on taxes. And my belief, it isn't just... I know you think I'm just being stubborn, but I was getting my degree in economics back at a time when economists had some different philosophies about this. One of the basic things in the early part of this century was that every time there was a business slump or hard times, so-called, they hadn't thought of the word recession then, the classic theory was that it was when government had stepped over a certain invisible line with regard to the percentage that they were taking from the private sector. And all the evidence seems to show it. When Coolidge and Andrew Mellon between them had the big tax cut shortly after World War I in his term there, the immediate response was a business takeoff when John Kennedy had his tax cut. The result was the same. But it was also true that government revenues didn't go down, and the figures that I gave yesterday to some of you are the fact that we, in 1980, with our budget and our deficit, we then passed our tax reforms in 1981, but they didn't really go into effect because of the staggering of them until about 1983. And by then revenues at the lower tax rates had increased 42 percent, the government's revenues. But the problem was, that's by 1985, the problem was that government spending had increased by 60 percent, and I've already had the information that I think to break that down so some of you won't putting the blame for that in the wrong place, less than a third of that was due to the increase in defense spending. But that was the increase in spending as against the other. Now to show that that 42 percent increase was really a legitimate increase more than just time going on, the median income in the same period for our people only increased 27 percent. So I believe that flirting with more tax rates and tax increases is flirting with another recession with setting back the recovery that we presently have. Nobody? No, I want real reform, but let me just point out something here. The, with regard to, for example, the value-added tax, I don't think any of us should forget that when Margaret Thatcher took over in England and set out to try and reverse the horrors inflicted on England economically by the Labour Party, the Socialist Party, that had preceded her. She started, and she cut the income tax and started doing some of the same things that we started doing. Of course, she couldn't make an awful lot of headway at first with denationalizing some of the now government-run businesses like we're trying to do with Conrail and reverse that. But she also then was talked into a value-added tax and passed at the same time she was cutting other taxes. Over here she replaced a lot of that revenue, and it isn't the form of tax. It's the amount of money that's taken by government from the private sector. And England today, as we know, is still staggering. We know what has happened to the pound. We know that their unemployment rate is not only far higher than ours, but the way they count unemployment means that actually, percentage-wise, their unemployment rate is about three or four times higher in relation to ours than it appears, because the only people they count unemployed are the principal wage earner of a family. In other words, if there's two employees in the family, one of them can be unemployed, and if it isn't the principal wage earner, he's not counted as unemployed, he or she. So this, again, is a thing that you look at, and you see where they didn't really set out and reduce the percentage of money the government was taking from the private sector. And I just, I think that there are some things. There are deductions that Mr. Rostkinkowski let go back in the ways and means committee version. These were the things that made me, let's talk to the House of Representatives about passing their bill through. I told them, frankly, that the bill that I was asking them to vote for to get out of the House so it could get over and you thought it could have a chance at it, that that was a bill I was asking them to vote for that I wouldn't sign. I'd veto if it came to my desk in its present form. And it was because of some of the changes that they had made, some of the changes that affecting business, so forth. Yes, we're going to have to find revenues, but we can find them. We should set out to find them in restoring some of the features that they took out. I think that the bill right now is hostile to business investment and therefore hostile to some of our recovery. I think the deduction I know, what a tremor went down my spine when the first time I saw not taking deductions for state and local taxes, but then as I began to study it and as I saw that even my, in my own state, the tax franchise board, which I can tell you is very hungry for revenues always, they're looking every place for them, they worked out that the people of California would still, all of them, be better off under the tax reform, even though they didn't have this deduction. That was one of the biggest sources of revenue that they took away from us with that. But the main point is also for us to think about. Less than a third of our people get that as a deduction now because the people who don't itemize their tax bills, which is more than two-thirds of our people, they don't get that deduction. So only a small, and the people at the upper level of income are the ones who are getting any advantage. But we're moving their tax rate down to such a point at 35% that they're still better off even without that deduction. And I'd like to have us be taking closer looks at some of these things that were changed in order to get votes to get it out of the committee. I've read it. Yes, there's no question about it. There's no question also that conventional arms are in the long run more expensive than just getting by with the great mass killers and destructive missiles and so forth. But no, that has to be done. And again, I think that we've... I've tried saying some things to audiences out there. I think our people have been confused by a lot of the attacks against the Defense Department and defense spending and all. For example, the highly expensive toilet seats and the coffee makers and the $400 hammer. Well, I've taken great delight in a number of occasions out there with audiences. I never see it on TV and I never see it in any of the paper accounts of my addresses that I said these things. But then they leave an awful lot out that I've said. But I have pointed out, first of all, we never bought a $400 hammer. Once a hammer in an invoice came through and a bright young individual in the Navy Department saw it immediately and it was taken out of there so it was a price that was put in and nothing ever happened with it. But the other two things, we're not asking for several thousand dollars for toilet seat covers. What we're talking about is a thing that's used in all the great transport planes, our passenger planes and so forth, and this is an entire molded plastic cover for the entire system. And we're paying about the same roughly or even a little less than the private airlines are paying. The coffee maker. That isn't a coffee pot for $3,000 and something. That's for a plane that carries 365 men and may have men there 10 hours at a stretch. But it's the same thing that is in again, all the commercial airliners. And they happen to pay about $150 more than the government is paying for that same thing that is available for that many hundreds of people over long hours stretches. So it's a rather high-tech instrument that we're buying. Well, I say this to the people out there in a speech that's really surprised at the applause and people turning to each other and you can see them looking at each other like they'd never dreamed this, they didn't know this was going on. But I think we've done a great job. Give the credit cap here for the build-up of our conventional forces. And maybe you are already all aware we have the finest young people we've ever had in the military. And that includes all of us that were in it at one time. Over 90 percent high school graduates never have we had that percentage even when we've had a complete draft in the three brackets of intelligence in which the men are graded in regard to men and women for what they're going to do. We have the highest percentage of people in uniform in the highest bracket of intelligence that we have ever had. And most of our major weapon purchases are coming in under budget and earlier than they were called for. But that, you're right, we have to have that. One of my happier moments meeting with Mr. Gorbachev was when he, one of the only times he kind of showed a little tendency toward anger was that we were trying to bankrupt them by forcing them into an arms race. And I delighted in saying, we're just trying to catch up. Then he changed the subject. Just what you really mean in the sense that it should... Well, I think the pattern that we had first in the one that we set up there which protected what we had done in the 1981 tax reforms for business. Certainly we should not, we of all people should not be responsible now for putting roadblocks in the way of the recovery or the ability of plants to modernize and expand and so forth. And this was one of the changes that I was violently opposed to when it came out of the Ways and Means Committee. So this is one of the things that I think we should change. One thing at once. This deficit would be the number one priority. I'm not trying to do it again. That's not going to happen. But say to me if the Congress just concentrates on that I'm sure that you'll be using your efforts to try to press us and to just concentrate on that. And that's all right. And I think that they would be better off and I think the perception out there at least in my state that the economic prosperity we've got in our country will keep on going if we do our job in reference to that deficit. And we've got a plan now in place but we have to make it work. And now we've got to make it work. This is a long overdue plan. And to me the great value in the plan is that it's taken time. There's no way you're going to eliminate a deficit in one year. We've known that for a long time. But to have a plan and then anyone that stands up and raises their head and tries to put a bump in that declining line of deficits is violating the entire five-year plan. And if we stick with this I've used some figures before and forgive me if I've told them to you before. But if you go back I know that all of us around this table must at many times have spoken out against deficit spending. And for them now to be turning around and blaming us for deficit spending when for 50 years with just a few years here and there exceptions we've had and we were told that it was deliberate because we had to have a little deficit spending to create prosperity. And I remember the other slogan they always used this is the other side when I say they they always used was that that the debt didn't matter because we owed it to ourselves. Well then in the middle 60s something happened called the it was Lyndon Johnson's war on poverty which poverty won. They institutionalized deficit spending to such an extent that take the period 1965 to 1980 that's before we were here. 1965 to 1980 the budget increased to five times what it was in 1965 the deficit increased to 38 times what it was in 1965. And it's continued just growing you can see where it started back there and going on these bigger jumps every year a bigger increase in deficit. Well all of us that made speeches that we've got to end that and we've got to get back to keeping government within its income well now we're the ones here that have got to lead the charge in ending it and ending it once and for all. And when we get it down then that amendment that says we can't have it anymore and I just said here to Strowman to Bob then we all want to rush down to the Jefferson Memorial and look and see if he's smiling because clear back the ratification of the Constitution Thomas Jefferson spoke up then very eloquently and said the one omission that is to identify these three leaders of the Congress what they are for and what we are for it seems to me we're on the threshold of trying to establish a bipartisan approach in the house and the Senate that might be sustained so that Honduras and Guatemala rest have a feeling that we're going to be in this for a while and I think we'll be able to get on the solitary side if we're able to identify what we're for in addition to the things that we find for the other comment I would hope you would consider is that I know the Hondurans are nervous and so are many and they've advised a covert program but this may be a time in which the American people if they are going to be enlisted to stay in this over the long run really have to be for an overt program have to identify what we're doing, what our money is going for and I know it's a close call but I was suspecting dealing with the house we might get the military but not get the covert and I would hate to have gotten over one barrier and missed the second and this is more in the form of a comment but I know your administration considering this is your thinking about it and it just seems to me important that we all get our signals straight at the outset on what we're for the goals that we want to go about and perhaps try to list the American people this time and a straightforward approach this is you said something that I think is a good idea that we should be looking more at more and that is not only the goals but then is there going to be a civil war between the units that are presently fighting against the Sandinistas and make sure that they can come together the goals that we've always outlined and yet you're right we haven't made this public enough they're actually incorporated in the statement that was made to the organization of American states when the revolution against Samosa was going on when the present contras were on the same side as the Sandinistas and they had asked the organization to appeal to Samosa to step down in order to end the killing and the organization of American states said well we need to know what are the goals of the revolution and those goals were then given in writing and they were all the things that we have here freedom of speech and press and pluralistic society and all of those things but you're right I don't think this has been emphasized enough those are still our goals and what we believe the goals of the contras are but I think we should be looking at something more of that kind in addition to just the things we say against the Sandinistas we just recently saved a 16 year old girl who was going to be taken away from her adopted parents and shipped back to Mexico as an illegal seems that 16 years ago there was some hitch in the adoption papers of this couple that had adopted her she's grown up as an American the daughter of this American family and all of a sudden she was slated for deportation well she's still in an American family and one of the most confusing things in the country is that we know that the president of the United States stands firm in opposition to deficits very clear in your history since you first became a public figure but the way some of the Stokesman for this administration various agencies are talking you would think that you are all alone in opposing deficits because I have read over this past four weeks every national statement and watched in all the national television programs administration and putting captain officers essentially saying that this legislation is going to be the ruination of the country to destroy America of course the backside of what they are saying is the only way we can do what they want is to deficit spend I know that the president of the United States doesn't believe that for a minute we don't know you are behind it and I wish you would kind of tell some of the people that work for you the others speak with one voice thank you very much at this time he is going to be leaking blood we have the last question from Paul Triple I think our time is up the president said many of us believe that we should support the anti-Marx support specifically I would like to know what the administration's policy will be for kids in terms of our providing in Angola well I can tell you that we are in sympathy with just what you said and we are discussing things with you those other incidents but that's what we got to do more of is talking to each other I have often said you only get in trouble when you are talking about each other so we will be and I know I shouldn't be telling this to an audience of senators but as governor I had the experience of a two house our house in California was called the assembly the senate and I always as here had more support on the senate side because we had a totally dominated democratic assembly all the time I was there but it was a prayer breakfast that was coming up the annual prayer breakfast and one of our senators had to speak first and then to be followed by a spokesman for the assembly and he asked me if I had anything I could suggest and I said yes it's right out of the bible I said it's a line that some said one thing and some said another for the more part knew not where for they were come together and the assembly was confused but I had underestimated somebody on the assembly side because our senator he quoted that line accurately and then the assemblyman stood up to follow and said and it was a senator that crucified our lord well thank you all for being here we'll see each other again soon thank you very much