 Ladies and gentlemen, the President of the United States. You do. Thank you. Thank you all very much. I know that Secretary Baker is already briefed you and Don Reagan will be talking to you after I finish. These CEOs always want to have the last word. But I'm going to speak for a few minutes and then take some questions time permitting. People all across the country are embracing our tax plan, America's tax plan, because they rightly see it as fairer and simpler, something they've been waiting for for a long, long time. All the indications are favorable. Polls show a groundswell of popular support and a rising stock market and dropping interest rates suggest that the financial markets are very comfortable with America's tax plan. Our tax overhaul will begin with major tax relief for families who've seen their personal exemptions whittled away by inflation and who've showed it a huge increase in the tax load. Our family relief plan would raise the standard deduction, practically double the personal exemption, lower marginal income tax rates significantly and give homemakers equal access to tax deductible IRAs. Now, I know that I may be saying things that Jim Baker has already said to you, but we're also expanding the earned income tax credit for low-income wage earners and indexing it to inflation. And the result will be that families will have an easier time making ends meet and those at the bottom end of the ladder will be virtually exempt from taxation. Opportunity is key to the promise of the American dream, but high tax rates have transformed that difficult but rewarding climb up the ladder of success into a bitter and exhausting enslavement on the tax treadmill. And that's all going to change. The tax system must no longer be poverty's accomplice. An American Opportunity Society begins with an expanding healthy economy and that's where our pro-growth initiatives come in. First, we're cutting marginal income tax rates by an average of 19%. There's no sure way of getting more economic growth. We saw it happen in Germany after World War II when Ludwig Erhard's tax cuts helped revitalize their economy. In Japan, when 20 years of continuous tax cutting was instrumental in catapulting that nation into the front ranks of the world's economic leaders. And here at home, we've had three dramatic examples of lower marginal rates liberating growth. Andrew Mellon's tax cuts in the 20s, John Kennedy's in the 60s, and our almost 25% across the board tax cut that helped lift the American economy out of malaise and into a surging economic growth in 1981. America's tax plan will give us just about the lowest tax rates of any country in the industrialized world. And that along with our vibrant economy will make us the investment capital of the world. Some I know are concerned about the elimination of the investment tax credit and the restructured depreciation system. We feel our plan would stimulate new economic growth. One of the important ways our proposed depreciation system would be superior to the accelerated system that we had is that it would be indexed to inflation. So businesses wouldn't have to worry about a decline in the real value of their write-offs. It would also reduce the distortions in economic efficiency caused by the investment tax credit and other provisions so that the market, not the government, would determine the flow of capital. As part of our growth agenda, we're also cutting the capital gains tax. The two previous capital gains cuts in 1978 and 81 probably saved the life of the American economy. Excessively high capital gains had almost strangled the technological revolution at its birth. Venture capital, the high-powered money to finance the riskiest and most daring projects had all but dried up to a mere $39 million in commitments in 1977. But after cutting capital gains, venture capital shot to all-time high, increasing over 100-fold to $4.2 billion in 1984 alone. We're pulling ahead of the competition. Cutting capital gains again will make sure that we stay there. We're closing the door on unjustifiable tax shelters so that we can open the door for innovation, opportunity, and growth. It's time that we pulled our investment money out of the tax shelters and reinvested it in America's future. We've also pared down deductions for business entertainment expenses. It just doesn't seem right for a wage earner carrying his tuna fish sandwich to work to subsidize exorbitant business lunches at luxury restaurants. We'd still allow for legitimate expenses, but to those who complain they can't live quite so high off the corporate account, we can only ask, well, why not brown bag it once in a while? Why not find smarter ways to put out our money to work than investing so heavily in executive lunches? We're keeping the provision for write-offs of intangible drilling costs. Today, we import more than a fourth of our oil from abroad, and the money we spent on those imports last year represented half our total trade deficit. Scuttling the IDC deductions would slow oil exploration in this country and reduce our output by as much as half a million barrels a day. I don't believe we want to increase our energy dependence on foreign imports or give the ailing OPEC cartel a shot in the arm. We must ensure reliable, secure energy sources here at home. Also key to a fairer, simpler tax code is elimination of the deduction for state and local taxes. The current deduction benefits wealthy citizens at the expense of those less fortunate, about two-thirds of all Americans, and an even greater majority of low and middle income taxpayers do not itemize and get no benefit from the state and local tax deduction. The simple fact is low and middle income taxpayers are being cheated because whatever state they're in, high or low tax, the present system forces them to pay the bill for the wealthy few who use the state and local deduction. And that's the injustice. Perhaps if the high-tax states didn't have this federal crutch to prop up their big spending, they might have to cut taxes to stay competitive. Some of the elected representatives from the high-tax states don't seem to like that idea much, but maybe they should take a poll of their constituents to see if their people think a tax cut is such a bad idea. We should get out of the habit of thinking of our economy as static and frozen in place. Our tax proposal is a dynamic model for the future. Any change of such scope and magnitude is going to require some adjustments. For the great majority of Americans, it'll be a very pleasant adjustment to lower rates and new and more plentiful opportunities, a growing, expanding, super-energized economy, an economy of hope and opportunity that just won't quit. I don't think we should settle for less. And now, I've got time for a few questions here. The increase in the tax take from corporations in the short term and the new tax plan? I believe that what we've done with regard to corporations is aimed more at corporations that, all good faith, have taken advantage of the present tax structure to make a profit and at the same time many of them avoid paying any tax whatsoever, or certainly reducing it greatly. What we think we've done, and by reducing the rate from 46 to 33 percent, is actually make the tax structure more fair for business and industry, but also we have plugged that loophole or series of loopholes by which a number we're not paying at all, and that's where the increase would come. Could I follow up? It also would be knocking supports out from under some of the basic industries that enjoyed those benefits, steel, heavy capital-intensive industries. Is that your aim? No, but we also don't think. When you look at the compensating factor of the reduction in the rates from 46 to 33, and then some of the other advantages that will be as a part of this plan, we don't believe that we're knocking the props out from under anyone. The proposal was on the Hill for a fourth tax bracket, perhaps a 40 percent, for those in the upper income levels. Would you consider that, like you know, along with that proposal? No. As a matter of fact, I think that would be contrary to what we're doing. Right now I feel like I'm standing against a cellophane wall getting shot at from both sides, because there are also some people up there on the Hill that want to reduce that top tax from 35 to 30. So the 40 percenters will be shooting, and so will the 30 percenters, and we think that the bracket we've chosen is a fair one. Mr. President, as you know, the deductions of state and local taxes along with interest deductions have been with us since the first income tax in 1913. The top rate, as I'm told, was about 7 percent. If you were making a half a million dollars a year back in 1913. Of course, that's been around a long time and you want to get rid of it. So the question, obviously, is considering what's happening on the Hill, just how over is the negotiation? Are you on this tactic? You mean on the... Just on that, but on the whole plan. Well, we think that we've worked out a pretty good plan. We've made some changes from the Treasury One proposal that we think were justified and should be made. We think that this one is balanced. But we... If they start nibbling at some of the specific proposals there on the Hill, as they undoubtedly will, there's one thing that they're going to have to be able to answer for any change they want to make. And that is, where are they going to get their replacement revenue? For example, the deductibility of state and local taxes is a tremendous part of the revenue proposal. And I don't know where they would get the money that would be eliminated if they did away with that. Federalism and of having decisions on taxes and spending made as close to the local taxpayer as possible, aren't you in this proposal trying to force certain states to cut their taxes and thereby cut their programs also? We just said that if this kind of subsidy is taken away from them, they might take a look to see if they haven't just been sort of inspired to raise their taxes because of the deductibility feature. And no one, no level of government should be taxing more than is absolutely necessary. We should be taxing to meet government's real needs, not government's wants. And we think that the overall tax reduction that we're giving the people in a way does something that I also have advocated for a great many years. And that is that the federal government, beginning back in the Depression days, gradually preempted so much taxing authority that local and state governments found it impossible to go to the people for a tax increase that they might actually need for something necessary. And by doing what we did in 81 and doing what we're now doing with this proposal, we are reducing the share that the federal government is taking and opening up the fact that some local level of government or state level with a real need that now can find that there's more leeway out there. Back when I was casting my first vote, the total amount of money that governments were taking in this country was about ten cents out of every dollar earned. And of that, two-thirds was going to local and state governments, only less than one-third to the federal government. Now we're taking up somewhere around 35 cents for all total governments. And of that amount, three-fifths is taken by the federal government and only two-fifths left for the state and local. So we're, in a sense, redressing this back to where there will be more availability out there in the earnings of the people. One more question. Yes, I think that there is considerable concern in Congress about the distribution of benefits that there are in this bill. And one way of figuring it is that for people in the bracket of $250,000, they would get an average tax cut of about $200. So a total over $200,000 would actually get a tax cut of about $10,000. Do you think that that's fair or should that be altered? Well, I don't know that the figures are completely accurate on this other, but I do know that the brackets and the percentages, it is still a progressive tax. We have not come down to proportionate tax as some of the flat tax people would have us do. I think we have to recognize that that tiny percentage of people up there at that top level, roughly about 3% of the taxpayers, yes, if you go dollar-wise, they're going to get tremendous amounts of dollars back, but they're also going to be paying a tremendously greater or much greater tax out of those earnings. But when you start talking about people with, like, now some of the salaries that are so loosely thrown around of $1,000,000 or more a year, obviously they are going to get a bigger bundle of dollars, as I've said. But at the same time, proportionately, they're going to be paying hundreds of times more tax than the individuals that you mentioned. But I believe that that middle-income group is also going to be doing better than that tax that's been proposed. Thank you very much. You won't let me take any more. Can I take the ladies' question? If I don't, you'll have to. Yes, there. Thank you very much. Thank you. I don't think I heard the beginning. You're talking about our aid to college students now? Well, no, I'm afraid I don't. I should have let him answer this to begin with. Because I don't think that we're having that much of a... I think it's a budget question, if I may say so. You've proposed a budget question, not a tax question. Well, I think it is thought that we were hoping that it would be part of the tax plan to incorporate it into the federal budget. I think that what we're talking about is the whole general thing in the educational funds of the federal government. And I think that they have been misread also and are not taking into consideration a number of programs which we have changed from a specific program where we found the administrative overhead when the federal government dictated it was very high that we have switched to incorporate things in block grants where the local entity can utilize that in the way that they think meets their priorities because they're not the same wherever we go. And I think you will find that we have provided that we're not actually cutting into those funds. I know that I can just give you one example. We have, in one block grant, we reduced, or one series, of 10 block grants. We incorporated some 62 categorical grants, federal grants. And in so doing, found that we had reduced the regulations and the red tape on local levels of government from 801 pages of regulations, down to 30 pages of regulations by incorporating it into the block grant. So having been a governor and knowing what some of those red tape restrictions did to us when we started implementing the programs, I think that we've made an improvement there overall. But I'm going to have to turn it over to the CEO now. Thank you all very much. Well, we have a few remaining moments. Before this breaks up, we'll continue with the questioning program. Fresh bait, go ahead, please. Well, had we thought of a good idea, we would have suggested it, but we didn't. We think the 35 is the fair way to go. It's coming toward Bradley Gephardt, coming toward Kemp Kaston, but at the same time, it won't have the, how will I put it, the negative effects that perhaps a 40% rate would have. What we're trying to do is to get something that's economically sound here. And if you have rates that remain high, you may not get the economic bounce that you want from simplifying this tax code. Yes? Yeah. No, I haven't, maybe Treasury has. But I don't know. Quite obviously, there'll be more money available to tax. That's what the President was getting at. If people have more money left to them, there's more money theoretically available to the state to tax. And it's up to the state to decide how much revenue it needs and attacks accordingly. Yeah. Well, quite obviously, we'd want to see what the proposal was, what its revenue impact was. And most importantly, as I think Jim Baker told you, want to see the interaction of that with other parts of the tax code. Because if you give a break there, what do you do to the poor? What do you do to the wealthy? What do you do to revenues? And we got to maintain this as revenue neutral. So we'd have to find out what the proposal was, first of all, and secondly, the revenue impact. What you're willing to. Well, sure, we'll listen to anything. Yeah? Throw it out, kind of burn this whole thing. Oh, it wasn't thrown out. Come on. All right. Cut it out. It was altered somewhat. No, it was no mistake. Because remember what we're doing, we're talking about this as the basic work. Treasury 1 has been modified. Some places considerably and other places, not very much at all. And it has become the basic foundation on which this whole tax discussion is being built. Now, had we not done that, we'd still be wondering, what would the effect of X, Y, or Z be? What we tried to do in Treasury 1 was to set up a model plan. We knew damn well that it wasn't realistic to expect that that could get through 100% through the political machinery. Remember my first press conference announcing that? I said it's written on a word processor. We knew what we were doing, but we wanted to set up what would be a model and then have others shape it to reality. Well, we've got a probably what, another three or four months of debate on this before we get to the final vote. So I don't know what the eventual outcome will be in the initial few weeks, you're correct. That's where the loudest outcries have come, although charities spoke out quite heavily and fraternal insurance organizations deluged us with phone calls and telegrams and also the Hill. And we quickly changed that. So it's not just business that's been the loud outcry unless you consider charity a business. No, I don't think so. Because I think that what we're seeing is is a lot of business support now that we might otherwise not have seen had we persisted with Treasury 1. In connection with the cash show. It's simple. You have $1,000 a year you put into policy as a premium or you put $1,000 a year into a savings account. On the policy, no tax, and you can build up the cash value. You and I and everybody else can borrow against that. Usually at pretty good rates. Over here you have a savings account. You get taxed on that. Whether or not you withdraw that interest, you're getting taxed on it. What's fair about that? Not whole life. You're talking about term insurances. There's the protection. Whole life is not protection. Many people look at the investment side of whole life. That's sold as an investment. How about the GI Bill? More people have bought insurance on the GI Bill and that's strictly term. What? Well it can be if you want to get into from that angle but most people buy term. How does the cash value forfeit to the company at death? Well, what about it? Well, the guy's paid $6,000 and his family gets $10,000. Well, I submit that 5% on past book savings was much too low during periods of inflation where we had inflation at 10% to 12% yet we were taxing that 5%. What's so fair about that? No. Isn't the insurance company screaming because a good thing they had and unfair competition against thrifts being denied? Last question, go ahead. It was felt that most people in those brackets after we surveyed people and we held those hearings that Treasury won around the country most people didn't care about that, didn't understand it, didn't know what they were doing and they just accepted it as another goodie that they may or may not have been contributing that amount to charity. Even so, but if 10% is going they'd probably be better off to itemize because they'd also, if they have enough to give 10% to a church the chances are they'll also have a mortgage or some other borrowings so they'd have interest also, they'd be better off itemizing rather than taking the standard deduction. Well, I wish I could stay longer. This looks like a good group, some of whose faces I recognize from my former capacity but they did tell me at 2 o'clock we have to end so I'll end at 2 o'clock anyway. And now our final speaker is Patrick Buchanan Director of Communications and I think, Pat, are you just going to take questions or do you have some? We really get to the bottom of the batting order here. I'm not going to, as I would not talk to a group of Jesuits about canon law I'm not going to talk about the economic details of this package but I thought you might be interested in some of the background the philosophy of the tax program the political framework that comes in a little bit about the strategy and tactics as we've utilized them so far in at least the first two weeks of the program. There are really three basic ideas that were imposed on this tax package and I think that come out of it in terms of themes and