President Reagan's Address to the Nation on the Economy, February 5, 1981

good evening I'm speaking to you tonight to give you a report on the state of our nation's economy and regret to say that we're in the worst economic mess since the Great Depression a few days ago I was presented with a report I'd asked for a comprehensive audit if you will of our economic condition you won't like it I didn't like it but we have to face the truth and then go to work to turn things around and make no mistake about it we can turn them around I'm not going to subject you to the jumble of charts figures and economic jargon of that audit but rather we'll try to explain where we are how we got there and how we can get back first however let me just give a few attention getters from the audience the federal budget is out of control and we face runaway deficits of almost 80 billion dollars for this budget year that ends September 30th that deficit is larger than the entire federal budget in 1957 and so is the almost 80 billion dollars we will pay an interest this year on the national debt 20 years ago in 1960 our federal government payroll was less than 13 billion dollars today it is 75 billion during these 20 years our population has only increased by twenty three point three percent the federal budget has gone up five hundred and twenty eight percent now we've just had two years of back-to-back double-digit inflation 13.3% in 1979 twelve point four percent last year the last time this happened was in World War one in 1960 mortgage interest rates averaged about 6% there two and a half times as high now 15 point four percent the percentage of your earnings the federal government took in taxes in 1960 has almost doubled and finally there are seven million Americans caught up in the personal indignity and human tragedy of unemployment if they stood in a line allowing three feet for each person the line would reach from the coast of Maine to California well so much for the audit itself let me try to put this in personal terms there is a dollar such as you earned spent or saved in 1960 and here is a quarter a dime and a penny 36 cents that's what this 1960 dollar is worth today and at the present world inflation rate and our rate should continue three more years that dollar of 1960 will be worth a quarter what initiative is that is saved and if we don't save we're short of the investment capital needed for business and industry expansion workers in Japan and West Germany save several times the percentage of their income that Americans do what's happened to that American dream of owning a home only 10 years ago a family could buy a home in the monthly payment average little more than a quarter 27 cents out of each dollar earned today it takes 42 cents out of every dollar of income so fewer than one out of eleven families can afford to buy their first new home regulations adopted by government with the best of intentions have added six hundred and sixty-six dollars to the cost of an automobile it is estimated that altogether regulations of every kind on shopkeepers farmers and major industries and a hundred billion dollars are more to the cost of the goods and services we buy and then another twenty billion is spent by government handling the paperwork created by those regulations I'm sure you're getting the idea that the audit presented to me found government policies of the last few decades responsible for our economic troubles we forgot or just overlook the fact that government any government has a built-in tendency to grow now we all had a hand in looking to government for benefits as if government had some source of revenue other than our earnings many if not most of the things we thought of or the government offered to has seemed attractive in the years following the Second World War it was easy for a while at least to overlook the price tag our income more than doubled in the 25 years after the war we increased our take-home pay in those 25 years by more than we had amassed at all the preceding 150 years put together yes there was some inflation one or one and a half percent a year that didn't bother us but if we look back at those golden years we recall that even then voices had been raised warning that inflation like radioactivity was cumulative and that once started it could get out of control some government programs seem so worthwhile that borrowing to fund them didn't bother Asst by 1960 our national debt stood at 284 billion dollars Congress in 1971 decided to put a ceiling of 400 billion on our ability to borrow today the debt is nine hundred and thirty four billion so-called temporary increases or extensions in the debt ceiling have been allowed 21 times in these 10 years and now I've been forced to ask for another increase in the debt ceiling or the government will be unable to function past the middle of February and I've only been here 16 days before we reach the day when we can reduce the debt ceiling we may in spite of our best efforts see a national debt in excess of a trillion dollars now this is a figure that's literally beyond our comprehension we know now that inflation results from all that deficit spending government has only two ways of getting money other than raising taxes it can go into the money market and borrow competing with its own citizens and driving up interest rates which it has done or it can print money and it's done that both methods are inflationary we're victims of language the very word inflation leads us to think of it as just high prices then of course we resent the person who puts on the price tags forgetting that he or she is also a victim of inflation inflation is not just high prices it's a reduction in the value of our money when the money supply is increased but the goods and services available for buying are not we have too much money chasing too few goods wars are usually accompanied by inflation everyone is working or fighting but production is of weapons and munitions not things we can buy and use one way out would be to raise taxes so that government need not borrow or print money that in all these years of government growth we've reached indeed surpassed the limit of our people's tolerance or ability to bear an increase in the tax burden prior to World War two taxes were such that on the average we only had to work just a little over one month each year to pay our total federal state and local tax bill today we have to work for months to pay that bill some say shift the tax burden to business and industry but business doesn't pay taxes oh don't get the wrong idea business is being taxed so much so that we're being priced out of the world market but business must pass its cost of operations of that includes taxes on to the customer in the price of the product only people pay taxes all the taxes government just uses business in a kind of sneaky way to help collect the taxes they're hidden in the price we aren't aware of how much tax we actually pay today this once-great industrial giant of ours has the lowest rate of gain and productivity of virtually all the industrial nations with whom we must compete in the world market we can't even hold our own market here in America against foreign automobiles steel and a number of other products Japanese production of automobiles is almost twice as great per worker as it is in America Japanese steel workers out produce their American counterparts by about 25% now this isn't because they're better workers I'll match the American working man or woman against anyone in the world but we have to give them that tools and equipment that workers and the other industrial nations have we invented the assembly line and mass production but punitive tax policies and excessive and unnecessary regulations plus government borrowing have stifled our ability to update plant and equipment when capital investment is made it's too often for some unproductive alterations demanded by government to meet various of its regulations excessive taxation of individuals has robbed us of incentive and made overtime unprofitable we once produced about 40% of the world's steel we now produce 19 percent we were once the greatest producer of automobiles producing more than all the rest of the world combined that is no longer true and in addition the big three the major auto companies in our land have sustained tremendous losses in the past year and have been forced to lay off thousands of workers all of you who are working know that even with cost of living pay raises you can't keep up with inflation in our progressive tax system as you increase the number of dollars you earn you find yourself moved up into higher tax brackets paying a higher tax rate just for trying to hold your own a result your standard of living is going down over the past decades we've talked of curtailing government spending so that we can then lower the tax burden sometimes we've even taken a run at doing that but there were always those who told us that taxes couldn't be cut until spending was reduced you know we can lecture our children about extravagance until we run out of voice and breath or we can cure their extravagance by simply reducing their allowance it's time to recognize that we've come to a turning point we're threatened with an economic calamity of tremendous proportions and the old business-as-usual treatment can't save us together we must chart a different course we must increase productivity that means making it possible for industry to modernize and make use of the technology which we ourselves invented that means putting Americans back to work and that means above all bringing government spending back within government revenues which is the only way together with increased productivity that we can reduce and yes eliminate inflation in the past we've tried to fight inflation one year and then with unemployment increase turn the next year to fighting unemployment with more deficit spending as a pump primer so again up goes inflation it hasn't worked we don't have to choose between inflation and unemployment they go hand-in-hand it's time to try something different and that's what we're going to do I've already placed a freeze on hiring replacements for those who retire or leave government service I've ordered a cut and government travel the number of consultants to the government and the buying of office equipment and other items I put a freeze on pending regulations and set up a task force under Vice President Bush to review regulations with an eye toward getting rid of as many as possible I have decontrolled oil which should result in more domestic production and less dependence on foreign oil and I'm eliminating that ineffective Council on wage and price stability but it will take more much more and we must realize there is no quick fix at the same time however we cannot delay in implementing an economic program aimed at both reducing tax rates to stimulate productivity and reducing the growth in government spending to reduce unemployment and inflation On February 18th I will present in detail an economic program to Congress embodying the features I've just stated it will propose budget cuts in virtually every department of government it is my belief that these actual budget cuts will only be part of the savings as our cabinet secretaries take charge of the department's they will search out areas of waste extravagance and costly administrative overhead which could yield additional and substantial reductions now at the same time we're doing this we must go forward with a tax relief package I shall ask for a 10% reduction across the board in personal income tax rates for each of the next three years proposals will also be submitted for accelerated depreciation allowances for business to provide necessary capital so as to create jobs now here again in saying this I know that language as I said earlier can get in the way of a clearer understanding of what our program was intended to do budget cuts can sound as if we're going to reduce total government spending to a lower level than we spent the year before well this is not the case the budgets will increase as our population increases and each year we'll see spending increases to match that growth government revenues will increase as the economy grows but the burden will be lighter for each individual because the economic base would have been expanded by reason of the reduced rates now let me show you a chart that I've had drawn to illustrate how this can be here you see two trend lines the bottom line shows the increase in tax revenues the red line on top is the increase in government spending both lines turn upward reflecting the giant tax increase already built into the system for this year 1981 and the increases in spending built into the 81 and 82 budgets and on into the future as you can see the spending line rises at a steeper slant than the revenue line and that gap between those lines illustrates the increasing deficits we've been running including this year's eighty billion dollar deficit now in the second chart the lines represent the positive effects Congress accepts our economic program both lines continue to rise allowing for necessary growth but the gap narrows as spending cuts continue over the next few years until finally the two lines come together meaning a balanced budget I am confident that my administration can achieve that at that point tax revenues in spite of rate reductions will be increasing faster than spending which means we can look forward to further reductions in the tax rates now in all of this we will of course work closely with the Federal Reserve System toward the objective of a stable monetary policy our spending cuts will not be at the expense of the truly needy we will however seek to eliminate benefits to those who are not really qualified by reason of need as I've said before On February 18th I will present this economic package of budget reductions and tax reform to a joint session of Congress and to you in full detail our basic system is sound we can with compassion continue to meet our responsibilities to those who through no fault of their own need our help we can meet fully the other legitimate responsibilities of government we cannot continue any longer are wasteful ways at the expense of the workers of this land or of our children since 1960 our government has spent five point one trillion dollars our debt has grown by 648 billion prices have exploded by a hundred and seventy eight percent how much better off are we for all that well we all know we're very much worse off when we measure how harshly these years of inflation lower productivity and uncontrolled government growth have affected our lives we know we must act and act now they must not be timid we will restore the freedom of all men and women to excel and to create we will unleash the energy and genius of the American people traits which have never failed us to the Congress of the United States I extend my hand in cooperation and I believe we can go forward in a bipartisan manner I found a real willingness to cooperate on the part of Democrats and members of my own party to my colleagues in the executive branch of government and to all federal employees I asked that we work in the spirit of service I urged those great institutions in America business and labor to be guided by the national interest and I'm confident they will the only special interest that we will serve is the interest of all the people we can create the incentives which take advantage of the genius of our economic system a system is water Lippmann observed more than 40 years ago which for the first time in history gave men quote a way of producing wealth in which the good fortune of others multiplied their own unquote our aim is to increase our national wealth so all we'll have more not just redistribute what we already have which is just a sharing of scarcity we can begin to reward hard work and risk-taking by forcing this government to live within its means over the years we've let negative economic forces run out of control we stalled the judgment day we no longer have that luxury we're out of time and to you my fellow citizens let us join in a new determination to rebuild the foundation of our society to work together to act responsibly let us do so with the most profound respect for that which must be preserved as well it was sensitive understanding and compassion for those who must be protected we can leave our children with a none repayable massive debt and a shattered economy or we can leave them Liberty in a land where every individual has the opportunity to be whatever God intended us to be all it takes is a little common sense and recognition of our own ability together we can forge a new beginning for America thank you and good night

Channel: Reagan Library

Views: 30,153

Keywords: U.S. National Archives, Ronald Reagan, Reagan Presidential Library, Economy

Id: ufMyHSj5zpM

Length: 20min 0sec (1200 seconds)

Published: Tue Dec 06 2016