 Ladies and gentlemen, the President of the United States. Thank you. Thank you very much. Thank you. And you're very kind, especially when I've kept you waiting a little bit. I don't often get behind schedule on the first appointment in the morning, but I did this morning. Because the meeting just previous to this takes twice as long because it required translation. The gentleman who was in to see me. Well, good morning and welcome to the White House. And, Roy and Connie, it's great to have you here and to get this chance to see so many old friends and supporters. We met together last year. Among other things, we have a new OMB director. Around here, we've taken to calling him the Invisible Hand. But I want to say right off that there's absolutely no truth to the rumor that Jim Miller wants to privatize the Congress. We decided to be impractical because of the large liability premiums legislators would have to pay. Since last year, we've also seen tax reform take a giant step forward. And certainly the House bill needs improvement, and in a moment I'll get specific about how. But first, let's reflect on the dramatic, even revolutionary change that this tax reform bill represents. A consensus is forming in both parties that we must lower marginal tax rates in order to increase incentives and spur economic growth. Nothing succeeds like success, of course. And no one can any longer deny the success of marginal tax rate cuts and incentives in revitalizing the American economy and giving us 37 months of growth with low inflation. And now the ball is in the Senate's court. There are several important corrections we'll be looking for, among them a return of the full $2,000 personal exemption for itemizers as well as non-itemizers and the income tax. Your family started out in new homes beset with mortgage payments and all the cost of raising children. And urgently, these young families need the full exemption, and we're going to make sure they get it. Decades of inflation seriously eroded the value of the personal exemption and thrust an increasing share of the tax burden out of the shoulders of families with children. The truth of the matter is that even going to $2,000, we have not kept pace with inflation. If we stayed even in purchasing power with that exemption today with what the exemption was originally scheduled at, it should be $2,700, not $2,000. You might say that tax policy is made raising a family uneconomical, discouraging couples from having children or if they do forcing spouses into workforce simply so they can maintain an acceptable standard of living. We think it's about time that the federal government stopped putting the squeeze on families. We're going to make having children affordable again. As far as the top rate is concerned, in our minds 35% is a round number. It's exactly half of the 70% we started with five years ago. A final bill must also include incentives for American industry and effective dates should be ironed out so that investment decisions aren't disrupted or delayed due to uncertainty. Finally, any tax reform worth the name must give tax relief to the middle class and give all Americans a leg up on the ladder of success. Last year I also talked to you about the budget. Well, the budget cycle has come around again and I think it's got a flat tire. In fact, it's almost completely broken down. We've got the tool to fix it though. It's called line item veto. Bless you. Sooner or later, we're going to have to address the fundamental failures of the budgetary process and it should be sooner rather than later if we want to keep America growing strong. I have told a number of our congressmen recently that there isn't a state in the union that would live for five minutes with the Mickey Mouse budgeting process that the federal government is expected to get along with. In the meantime though, we're taking the Graham Rudman Hollings cure for congressional overspending. Taken in yearly doses, Graham Rudman Hollings will bring the budget into balance in 1990 and clear the way for continued prosperity. Our budgets will meet Graham Rudman Hollings targets and we'll do it without raising taxes, without damaging the safety net or touching social security and while still providing for 3% real growth in defense. Anyone who tells you that we can't make the necessary cuts is telling you one thing loud and clear. He wants to raise taxes. As far as I'm concerned, raising taxes is a cop out and no tax increase bill is going to make it within 100 yards of my desk without taking a direct hit from a veto came. And I may be quoted. I want the American people to know that. One of the ways we're going to slim the budget down is through privatization. Doesn't that word have a lovely ring to it? From now on, we're going to hold government to an unusually high standard, the private sector. If the private sector can provide certain services more efficiently and better, then why not let it? You'll be glad to know that since Jim Miller came on board, Adam Smith neckties have practically become part of the uniform over at OMB. As for defense, we've promised a whole spending to a real 3% increase and we will hold it to 3% no more and no less. We've already cut back severely on defense contrary to much of what you've been reading or hearing. Further reductions would seriously undermine our military preparedness. We've gone the extra mile to compromise with Congress and we're not going to compromise our national security. Cuts below 3% real growth would almost certainly spell the end to any hope for real arms control. What incentive will the Soviets have to negotiate mutual reductions and comply with existing treaties if America begins to unilaterally dismantle its deterrent forces? We know what's happened in the last day or two in the announcement from the Soviet Union about proposal for a gigantic arms reduction. Well, I can tell you now that's the first time that has ever happened that kind of a proposal has come from them. And I don't think there is any question but that our refurbishing of our military capacity is why they came to Geneva and why they're proposing what they're proposing. Because in Geneva I mentioned that the choice they faced was to continue this desperate arms building or recognize that we will never let them achieve a dangerous superiority over us so they have to choose between an arms race or cutting down on the weapons and we're happy to meet them on that ground. Even as we continue to negotiate for deep and verifiable arms reductions we can't close our eyes to Soviet treaty violations. The construction of the Krasnoyarsk radar is a clear violation of the ABM treaty. Soviet construction and rapid production of an illegal second intercontinental missile, the SS-25, strikes at the heart of SALT-2. Additionally we've documented certain and probable violations of SALT-1, the limited test ban treaty, the biological and toxin weapons convention, the Geneva protocol on chemical weapons and the Helsinki Accords confidence building measures, not to mention that treaty's promise to respect fundamental human rights. We should remember that it was only when the Soviets saw that we were going ahead with our defense modernization that they came back to the bargaining table ready to do business. If we want to keep them there and keep them serious about arms control we've got to show that we're serious ourselves. There's no question that Graham Rudman Hollings is going to demand some hard choices and retaining a consensus for rebuilding our defenses won't be as easy as every special interest lines up against the one interest that is special to all Americans. The number one national interest of a strong and secure defense. And that's why I'm once again asking for your help. Let your voices be heard loud and clear in all 50 states and please make sure that the echo resounds here in Washington D.C. It's been a great pleasure to see all of you again and I'm going to hold the line that we came here with to Washington. I dream back at the time when I made my first vote when the federal government took only a third or less out of the total tax burden of the United States and how it got to be taking two thirds out and leaving local and state governments with the remaining one third. I don't know how to explain it but I sure know how to correct it and that's what we're going to try to do so thank you all and God bless you all.