 Good evening. Shortly after taking office, I came before you to map out a four-part plan for national economic recovery, tax cuts to stimulate more growth and more jobs, spending cuts to put an end to continuing deficits and high inflation, regulatory relief to lift the heavy burden of government rules and paperwork, and finally a steady consistent monetary policy. We've made strong, encouraging progress on all four fronts. The flood of new governmental regulations, for example, has been cut by more than a third. I was especially pleased when a bipartisan coalition of Republicans and Democrats enacted the biggest tax cuts and the greatest reduction in federal spending in our nation's history. Both will begin to take effect a week from today. These two bills would never have passed without your help. Your voices were heard in Washington and were heeded by those you've chosen to represent you in government. Yet in recent weeks, we've begun to hear a chorus of other voices protesting that we haven't had full economic recovery. These are the same voices that were raised against our program when it was first presented at Congress. Now that the first part of it has been passed, they declare it hasn't worked. Well, it hasn't. It doesn't start until a week from today. There have been some bright spots in our economic performance these past few months. Regulation has fallen and pressures are easing on both food and fuel prices. More than a million more Americans are now at work than a year ago. And recently, there has even been a small crack in interest rates. But let me be the first to say that our problems won't suddenly disappear next week, next month, or next year. We're just starting down a road that I believe will lead us out of the economic swamp we've been in for so long. It'll take time for the effect of the tax rate reductions to be felt in increased savings, productivity, and new jobs. It will also take time for the budget cuts to reduce the deficits which have brought us near runaway inflation and ruinous interest rates. The important thing now is to hold a firm, steady course. Tonight, I want to talk with you about the next steps that we must take on that course. Additional reductions in federal spending that will help lower our interest rates, our inflation, and bring us closer to full economic recovery. I know that high interest rates are punishing many of you, from the young family that wants to buy its first home to the farmer who needs a new truck or tractor. But all of us know that interest rates will only come down and stay down when government is no longer borrowing huge amounts of money to cover its deficits. These deficits have been piling up every year. And some people here in Washington just throw up their hands in despair. Maybe you'll remember that we were told in the spring of 1980 that the 1981 budget, the one we have now, would be balanced. Well, that budget, like so many in the past, hemorrhaged badly and wound up in a sea of red ink. I have pledged that we shall not stand idly by and see that same thing happen again. When I presented our economic recovery program to Congress, I said we were aiming to cut the deficit steadily to reach a balance by 1984. The budget bill that I signed this summer cut $35 billion from the 1982 budget and slowed the growth of spending by $130 billion over the next three years. We cut the government's rate of growth nearly in half. Now we must move on to a second round of budget savings to keep us on the road to a balanced budget. Our immediate challenge is to hold down the deficit in the fiscal year that begins next week. A number of threats are now appearing that will drive the deficit upward if we fail to act. For example, in the euphoria just after our budget bill was approved this summer, we didn't point out immediately as we should, that while we did get most of what we'd asked for, most isn't all. Some of the savings in our proposal were not approved, and since then the Congress has taken actions that could add even more to the cost of government. The result is that without further reductions, our deficit for 1982 will be increased by some 18, or pardon me, 16 billion dollars. The estimated deficit for 83 will be increased proportionately, and without further cuts, we can't achieve our goal of a balanced budget by 1984. Now to be easy to sit back and say, well, it'll take longer than we thought, we got most of what we proposed, so let's stop there. But that's not good enough. In meeting to discuss this problem a few days ago, Senator Pete Dumanici of New Mexico, chairman of the Senate Budget Committee, recall the words of that great heavyweight champion and great American, Joe Lewis, just before he stepped into the ring against Billy Khan. There had been some speculation that Billy might be able to avoid Joe's lethal right hand. Joe said, well, he can run, but he can't hide. Senator Dumanici said to me, that's just what we're facing on runaway federal spending. We can try to run from it, but we can't hide. We have to face up to it. He's right, of course. In the last few decades, we started down a road that led to a massive explosion in federal spending. It took about 170 years for the federal budget to reach $100 billion. That was in 1962. It only took eight years to reach the $200 billion mark, and only five more to make it $300 billion, and in the next five, we nearly doubled that. It would be one thing if we'd been able to pay for all the things government decided to do. But we've only balanced the budget once in the last 20 years. In just the past decade, our national debt has more than doubled, and in the next few days, it'll pass the trillion dollar mark. One trillion dollars of debt. If we as a nation needed a warning, let that be it. Our interest payments on the debt alone are now running more than $96 billion a year. That's more than the total combined profits last year of the 500 biggest companies in the country. Or to put it another way, Washington spends more on interest than on all of its education, nutrition, and medical programs combined. In the past, there have been several methods used to fund some of our social experiments. One was to take it away from national defense. From being the strongest nation on earth in the post-World War two years, we steadily declined while the Soviet Union engaged in the most massive military buildup the world has ever seen. Now, with all our economic problems, we're forced to try to catch up so that we can preserve the peace. Government's first responsibility is national security and we're determined to meet that responsibility. Indeed, we have no choice. Well, what all of this is leading up to is, what do we plan to do? Last week, I met with the cabinet to take up this matter. I'm proud to say there was no hand-ringing, no pleading to avoid further budget cuts. We all agreed that the tax and tax spend-and-spend policies to the last few decades lead only to economic disaster. Our government must return to the tradition of living within our means and must do it now. We asked ourselves two questions and answered them. If not us, who? If not now, when? Let me talk with you now about the specific ways that I believe we ought to achieve additional savings. Savings of some $16 billion in 1982 and a total of $80 billion when spread over the next three years. I recognize that many in Congress may have other alternatives and I welcome a dialogue with them. But let there be no mistake, we have no choice but to continue down the road toward a balanced budget, a budget that will keep us strong at home and secure overseas. And let me be clear that this cannot be the last round of cuts. Holding down spending must be a continuing battle for several years to come. Now here's what I propose. First, I'm asking Congress to reduce the 1982 appropriation for most government agencies and programs by 12%. This will save $17.5 billion over the next several years. Absorbing these reductions will not be easy, but duplication, excess, waste, and overhead is still far too great and can be trimmed further. No one in the meeting has to be exempt from belt tightening. Over the next three years, the increase we had originally planned in the defense budget will be cut by $13 billion. I'll confess I was reluctant about this because of the long way we have to go before the dangerous window of vulnerability confronting us will be appreciably narrowed. But the Secretary of Defense assured me that he can meet our critical needs in spite of this cut. Second, to achieve further economies, we'll shrink the size of a non-defense payroll over the next three years by some 6.5%, some 75,000 employees. Much of this will be attained by not replacing those who retire or leave. There will, however, be some reductions in force simply because we're reducing our administrative overhead. I intend to set the example here by reducing the size of the White House staff and the staff of the Executive Office of the President. As a third step, we propose to dismantle two cabinet departments, energy and education. Both Secretaries are wholly in accord with this. Some of the activities in both of these departments will of course be continued either independently or in other areas of government. There's only one way to shrink the size and cost of big government, and that is by eliminating agencies that are not needed and are getting in the way of a solution. Now, we don't need an energy department to solve our basic energy problem. As long as we let the forces of the marketplace work without undue interference, the ingenuity of consumers, business, producers, and inventors will do that for us. Similarly, education is the principal responsibility of local schools, systems, teachers, parents, citizen boards, and state governments. By eliminating the Department of Education less than two years after it was created, we can not only reduce the budget, but ensure that local needs and preferences, rather than the wishes of Washington, determine the education of our children. We also plan the elimination of a few smaller agencies and a number of boards and commissions, some of which have fallen into disuse or which are now being duplicated. Fourth, we intend to make reductions of some $20 billion in federal loan guarantees. Now, these guarantees are not funds that the government spends directly. They're funds that are loaned in the private market and insured by government at subsidized rates. Federal loan guarantees have become a form of backdoor uncontrolled borrowing that prevent many small businesses that aren't subsidized from obtaining financing of their own. They are also a major factor in driving up interest rates. It's time we brought this practice under control. Fifth, I intend to forward to Congress this fall a new package of entitlement and welfare reform measures outside Social Security to save nearly $27 billion over the next three years. In the past two decades, we've created hundreds of new programs to provide personal assistance. Many of these programs may have come from a good heart, but not all have come from a clear head. And the costs have been staggering. In 1955, these programs cost $8 billion. By 1965, the cost was $79 billion. Next year, it will be $188 billion. Let there be no confusion on this score. Benefits for the needy will be protected, but the black market in food stamps must be stopped. The abuse and fraud in Medicaid by beneficiaries and providers alike cannot be tolerated. Provision of school loans and meal subsidies to the affluent can no longer be afforded. In California, when I was governor and embarked upon welfare reform, there were screams from those who claimed that we intended to victimize the needy. But in a little over three years, we saved the taxpayers some $2 billion. At the same time, we were able to increase the grants for the deserving and truly needy by an average of more than 40 percent. It was the first cost of living increase they had received in 13 years. I believe progress can also be made at the national level. We can be compassionate about human needs without being complacent about budget extravagance. Sixth, I will soon urge Congress to enact new proposals to eliminate abuses and obsolete incentives in the tax code. The Treasury Department believes that the deficit can be reduced by $3 billion next year and $22 billion over the next three years with prompt enactment of these measures. Now that we've provided the greatest incentives for saving, investment, work, and productivity ever proposed, we must also ensure that taxes due the government are collected and that a fair share of the burden is borne by all. Finally, I'm renewing my plea to Congress to approve my proposals for user fees. Proposals first suggested last spring but which have been neglected since. When the federal government provides a service directly to a particular industry or to a group of citizens, I believe that those who receive benefits should bear the cost. For example, this next year the federal government will spend $525 million to maintain river harbors, channels, locks, and dams for the barge and maritime industries and yacht owners. Commercial vessels and the airlines will receive services worth $2.8 billion from Uncle Sam. My spring budget proposals included legislation that would authorize the federal government to recover a total of $980 million from the users of these services through fees. Now that's only a third of the $3.3 billion it will cost the government to provide those same services. None of these steps will be easy. We're going through a period of difficult and painful readjustment. I know that we're asking for sacrifices from virtually all of you but there is no alternative. Some of those who oppose this plan have participated over the years in the extravagance that has brought us inflation, unemployment, high interest rates, and an intolerable debt. Now I grant they were well intentioned but their costly reforms didn't eliminate poverty or raise welfare recipients from dependence to self sufficiency, independence, and dignity. Yet in their objections to what we've proposed, they offer only what we know has been tried before and failed. I believe we've chosen a path that leads to an America at work, to fiscal sanity, to lower taxes, and less inflation. I believe our plan for recovery is sound and it will work. Tonight I'm asking all of you who joined in this crusade to save our economy to help again, to let your representatives know that you will support them in making the hard decisions to further reduce the cost and size of government. Now, if you will permit me, I'd like to turn to another subject which I know has many of you very concerned and even frightened. This is an issue apart from the economic reform package that we've just been discussing. But I feel I must clear the air. There's been a great deal of misinformation and for that matter pure demagoguery on the subject of social security. During the campaign I called attention to the fact that social security had both a short and a long-range fiscal problem. I pledged my best to restore it to fiscal responsibility without in any way reducing or eliminating existing benefits for those now dependent on it. To all of you listening and particularly those of you now receiving social security, I ask you to listen very carefully. First, to what threatens the integrity of social security and then to a possible solution. Some 30 years ago there were 16 people working and paying the social security payroll tax for everyone retiree. Today that ratio has changed to only 3.2 workers paying in for each beneficiary. For many years we've known that an actuarial imbalance existed and that the program faced an unfunded liability of several trillion dollars. Now the short-range problem is much closer than that. The Social Security Retirement Fund has been paying out billions of dollars more each year than it takes in and it could run out of money before the end of 1982 unless something is done. Some of our critics claim new figures reveal a cushion of several billions of dollars which will carry the program beyond 1982. I'm sure it's only a coincidence that 1982 is an election year. The cushion they speak of is borrowing from the Medicare Fund and the Disability Fund. Of course doing this would only postpone the day of reckoning. Alice Rivlin of the Congressional Budget Office told a congressional committee day before yesterday that such borrowing might carry us to 1990 but then we'd face the same problem and as she put it we'd have to cut benefits or raise the payroll tax. Well we're not going to cut benefits and the payroll tax is already being raised. In 1977 Congress passed the largest tax increase in our history. It called for a payroll tax increase in January of 1982, another in 1985 and again in 1986 and in 1990. When that law was passed we were told it made Social Security safe until the year 2030 but we're running out of money 48 years short of 2030. Of the nation's workforce the Social Security tax is already the biggest tax they pay. In 1935 we were told the tax would never be greater than 2% of the first $3,000 of earnings. It is presently 13.3% of the first $29,700 of earnings and the scheduled increases will take it to 15.3% of the first $60,600 and that's when Mrs. Rivlin says we would need an additional increase. Some have suggested reducing benefits others propose an income tax on benefits or that the retirement age should be moved back to age 68 and there are some who would simply fund Social Security out of general tax funds as welfare is funded. I believe there are better solutions. I am asking the Congress to restore the minimum benefit for current beneficiaries with low incomes. It was never our intention to take this support away from those who truly needed. There is however a sizable percentage of recipients who are adequately provided for by pensions or other income and should not be added to the financial burden of Social Security. The same situation prevails with regard to disability payments. No one will deny our obligation to those with legitimate claims but there's widespread abuse of the system which should not be allowed to continue. Since 1962 early retirement has been allowed at age 62 with 80% of full benefits. In our proposal we asked that early retirees in the future receive 55% of the total benefit but and this is most important. Those early retirees would only have to work an additional 20 months to be eligible for the 80% payment. I don't believe very many of you were aware of that part of our proposal. The only change we proposed for those already receiving Social Security had to do with the annual cost of living adjustment. Now those adjustments are made on July 1st each year, a hangover from the days when the fiscal year began in July. We proposed a one-time delay in making that adjustment, postponing it for three months until October 1st. From then on it would continue to be made every 12 months. That one-time delay would not lower your existing benefits but would on the average reduce your increase by about $86 one time next year. By making these few changes we would have solved the short and long range problems of Social Security funding once and for all. In addition we could have canceled the increases in the payroll tax by 1985. To a young person just starting in the workforce the savings from canceling those increases would on the average amount to $33,000 by the time he or she reached retirement. And compound interest add that and it makes a tiny nest egg to add to the Social Security benefits. However let me point out our feet were never embedded in concrete on this proposal. We hoped it could be a starting point for a bipartisan solution to the problem. We were ready to listen to alternatives and other ideas which might improve on or replace our proposals. But the majority leadership in the House of Representatives has refused to join in any such cooperative effort. I therefore am asking as I said for restoration of the minimum benefit and for inter fund borrowing as a temporary measure to give us time to seek a permanent solution. To remove Social Security once and for all from politics I am also asking Speaker Tip O'Neill of the House of Representatives and majority leader in the Senate Howard Baker to each appoint five members and I would appoint five to a task force which will review all the options and come up with a plan that assures the fiscal integrity of Social Security and that Social Security recipients will continue to receive their full benefits. I cannot and will not stand by and see financial hardship imposed on the more than 36 million senior citizens who have worked and served this nation throughout their lives. They deserve better from us. Well now in conclusion let me return to the principal purpose of this message. The budget and the imperative need for all of us to ask less of government to help to return to spending no more than we take in to end the deficits and bring down interest rates that otherwise can destroy what we've been building here for two centuries. I know that we're asking for economies in many areas and programs that were started with the best of intention and a dedication to a worthwhile cause or purpose but I know also that some of those programs have not succeeded in their purpose. Others have proven too costly benefiting those who administer them rather than those who were the intended beneficiaries. This doesn't mean we should discontinue trying to help where help is needed. Government must continue to do its share but I ask all of you as private citizens to join this effort too. As a people we have a proud tradition of generosity. More than a century ago a Frenchman came to America and later wrote a book for his countrymen telling them what he had seen here. He told them that in America when a citizen saw a problem that needed solving he would cross the street and talk to a neighbor about it and the first thing you know a committee would be formed and before long the problem would be solved. And then he added you may not believe this but not a single bureaucrat would ever have been involved. Some years ago when we were a young nation and our people began visiting the lands of their forefathers these American tourists then were rather brash unsophisticated by European standards but blessed with a spirit of independence and pride. One such tourist an elderly small town gentleman and his wife were there in Europe listening to a tour guide go on about the wonders of the volcano Mount Etna. He spoke of the great heat that had generated the power the boiling lava etc. Finally the old boy had enough of it turned to his wife and he said we got a volunteer fire department at home put that thing out in 15 minutes. Well he was typical of those Americans who helped build a neighbor's barn when it burned down they built the West without an area redevelopment plan and cities across the land without federal planning. I believe the spirit of volunteerism still lives in America. We see examples of it on every hand the community charity drive support of hospitals in all manner of nonprofit institutions the rallying around whenever disaster or tragedy strikes. The truth is we've let government take away many things we once considered were really ours to do voluntarily out of the goodness of our hearts and a sense of community pride and neighborliness. I believe many of you want to do those things again want to be involved if only someone will ask you or offer the opportunity. Well we intend to make that offer. We're launching a nationwide effort to encourage our citizens to join with us in finding where need exists and then to organize volunteer programs to meet that need. We've already set the wheels of such a volunteer effort in motion. As Tom Payne said two hundred years ago we have it within our power to begin the world over again. What are we waiting for? God bless you. Good night.