Presidential Radio Address - 29 January 1983

My fellow Americans:

On Monday, I will send to the Congress my budget message for fiscal year 1984. I wanted to give you a little preview of that message today.

Much of the debate in the weeks and months ahead will focus on the deficit. That's a dirty word which awhile back I'd hoped might be a thing of the past by 1984. But the deficit is going to be large. And I wanted to tell you the whys and wherefores of this deficit dilemma and how our budget seeks to remedy it.

Ironically, the deficit problem has been aggravated by our success in reducing inflation. You know, inflation is actually a form of taxation. During the 1970's, the government slyly got tax increases every year when cost-of-living pay raises pushed people into higher tax brackets.

Well, we've pretty much strangled the inflation tax, and the result is that the Government no longer gets a free ride. If the Government wants or needs more tax money, it should openly raise taxes, not follow practices that create inflation. Of course, raising taxes isn't as safe politically as letting inflation do it. So, lowering inflation has been quite a shock to the system.

Another reason the deficit is so burdensome is because the long recession has temporarily shrunk the number of people paying taxes. At the same time, the recession has added to the deficit by causing us to pay out more money in unemployment benefits, food stamps, and the like.

The interest on the national debt is also a reason for the deficit. About 12 percent of our budget, $103 billion a year, goes just to pay the interest. Fortunately, inflation and interest rates are down, so we're not financing that debt at the very high interest rates we once were. But it is still a very big chunk. In fact, it's more than the whole Federal budget was just about 20 years ago.

The necessary process of restoring our neglected national defense also has put pressure on our resources, but it's something we had to do. Where peace and freedom are at stake, we can't afford to gamble. And the fact is that the real purchasing power devoted to maintaining our military declined by a startling 20 percent in recent years.

Finally, despite our great strides in reducing the growth in spending over the last 2 years, the vast majority of domestic spending programs are still in place. The result of all this is that deficits have now reached towering levels that east a pall of uncertainty over the financial markets and threaten to slow and weaken the economic recovery ahead of us. Well, I don't intend to let that happen. As I outlined in my State of the Union message, I'm advocating sweeping changes designed to reduce the mounting Federal deficits that threaten our economic growth. And here's what I propose.

First, I will recommend an overall Federal spending freeze. So far, we've only cut the rate of increase in Federal spending. The government has continued to spend more money each year—just not as much more. We've got to do something about that, so I propose the budget for 1984 will increase no more than the rate of inflation. This will include a 6-month freeze in the cost-of-living adjustments recommended by the bipartisan Social Security Commission and a 1-year freeze on Federal employee pay and retirement programs. Now, while this means that defense spending will be up and nondefense spending, in total, will be down, it doesn't mean that all nondefense programs are being cut. In fact, some of them are increasing at even a greater rate than defense.

Second, I propose to adjust our program to restore America's defense by making $55 billion in defense savings over the next 5 years. The Secretary of Defense has assured me these reductions can be achieved without diminishing our ability to negotiate arms reductions or endangering our security.

Third, I'll ask the Congress to adopt specific measures to control the growth of spending for entitlement programs. Now, these are programs that have automatic increases built into them by legislation passed by Congress. When we submit the budget, we have to accept those built-in raises. Well, we are—for the first time—proposing some badly needed structural reforms, tailoring the benefits and eligibility rules to serve those with genuine need. In the food stamp program alone, last year we identified almost $1.1 billion in overpayments. This kind of error and waste takes money from those who really need benefits. We want to put a stop to it. I'm also proposing certain cost controls and incentives for economies in health care and measures to prune back the unaffordable costs of the Federal retirement system.

Fourth, I am proposing a standby tax that wouldn't start until 1986, and wouldn't start at all unless the deficit is greater than 2 1/2 percent of the gross national product. And even then, it won't start unless Congress has first passed our spending cuts. You might call this tax a safety net for the deficit. This way we can preserve the tax cuts and tax indexing we've already won for the American people and still have a fallback mechanism in place to cap the deficit if need be.

As I said the other night, America is on the mend. The leading economic indicators are up in December for the eighth time in the last 9 months. The auto companies are calling people back to work. General Motors alone is calling back more than 21,000 auto workers over the next 3 months. Construction contracts last month rose to the highest level in 3 years. And housing starts are up.

But in spite of the improving economy, much still needs to be done for the unemployed. In the days ahead, I will submit legislation designed to get at the special problems of the long-term unemployed and young people seeking to enter the job market. I'll propose extending unemployment benefits, including incentives to employers who hire the long-term unemployed. We will also seek more money for the programs benefiting displaced workers in the Job Training Partnership Act adopted last year.

Our budget is fair and realistic. It is a budget that will position America to take full advantage of the recovery. I look forward to working in a bipartisan spirit with the Congress in passing this budget.

Till next time, thanks for listening, and God bless you.