BUDGET MESSAGE OF THE PRESIDENT To the Congress of the United States: In the past year, the Nation's prospects have brightened considerably. The economy has grown strongly-beyond expectation. Inflation has been reduced to its lowest rate in 16 years. Unemployment has declined faster than at any other time in 30 years. We are well on our way to sustained long-term prosperity without runaway inflation. Our national security is being restored. Our domestic programs are being streamlined to reflect more accurately the proper scope of Government responsibility and intervention in our lives. Government operations are being made more effective and efficient, as steps are taken to reduce costs. These developments are the result of the program I proposed 3 years ago to correct the severe economic and political problems caused by previous short-sighted and misguided policies and priorities. That program focused on long-range real growth. My tax proposals were designed to provide badly needed incentives for saving and productive investment. I supported the Federal Reserve in its pursuit of sound monetary policy. I worked with the Congress to reverse the growth of Government programs that had become too large or had outlived their usefulness, and as a result, domestic programs, which had been growing rapidly for 3 decades, have finally been contained. I worked to eliminate or simplify unnecessary or burdensome regulations. To the Nation's great good fortune, the preceding Congress appreciated the fundamental soundness of this program and joined with my administration in helping to make it a reality. Frequently, because of entrenched constituency special interests, the political risks involved in doing so were great. I thanked Members then, and continue to be grateful, for the crucial support my program received. The Nation is now beginning to reap the solid fruits of our joint perseverance and foresight. The economy's response has fully vindicated my economic program. During the past 2 years the percentage rise in consumer price index has been no more than it was during the first 6 months of 1980. Economic recovery has been vigorous during the past year, with real GNP rising over 6% and industrial production by 16%. Unemployment, though still unacceptably high, has declined by a record 21⁄2 percentage points in a single year. Capacity utilization M3 in American plants has risen dramatically. Business investment in new plant and equipment has risen 111⁄2% in the past year, in real terms. American productivity, stagnant from 1977 to 1981, climbed 3.7% between the third quarter of 1982 and the third quarter of 1983. Interest rates declined substantially in mid-1982, followed by a major, sustained rally of the stock market that added half a trillion dollars to the net financial worth of American households. Real disposable personal income rose 5.1% in 1983. After a substantial decline, the U.S. dollar has rallied powerfully to its highest level in more than a decade. We are not, however, out of the woods yet. Despite our success in reducing the rate of growth of nondefense spending in the last three budgets, spending in 1985 will exceed 1981 levels by 41%, reflecting continued increases in basic entitlement programs, essential increases in defense spending, and rapid growth of interest costs. Clearly, much remains to be done. The task of rebuilding our military forces to adequate levels must be carried to completion, and our commitment to provide economic and military support to small, poor nations that are struggling to preserve democracy must be honored. At the same time, further action is required to curb the size and growth of many programs and to achieve managerial efficiencies throughout Government, wherever the opportunity is present. THREE YEARS OF ACCOMPLISHMENT Last year, I reviewed the dramatic improvements during the preceding 2 years in Government operations, and in the way they affect the economy. I am happy to report that these improvements continued through a third year. • Where the growth rate of spending was almost out of control at 17.4% a year in 1980, it will decline to 7.3% this year. • Where spending grew 64% over the 4 years from 1977 to 1981, it will rise by only 41% over the 4-year period from 1981 to 1985, despite legislated cost-of-living adjustments and the needed defense buildup. • The Federal tax system has been significantly restructured. Marginal income tax rates have been substantially reduced, greatly improving the climate for saving and investment. Depreciation reform has been enacted, restoring the value of depreciation allowances eroded by inflation. Tax loopholes have been closed, making the tax structure more equitable. Efforts have been made to shift to financing Government programs through user fees commensurate with benefits and services provided. • Our military strength is being restored to more adequate levels. • Domestic spending, which grew nearly 3-fold in real terms in a little more than 2 decades, will actually be lower this year than it was in 1981. • The rapid growth of means-tested entitlement programs has been curbed. Eligibility criteria have been tightened to target benefits more to the truly needy, and significant steps have been taken to improve the efficiency and effectiveness of these programs. Unnecessarily frequent cost-of-living adjustments were pared back. • The social security system has been rescued from the threat of insolvency raised by rampant inflation, excessive liberalizations, and lagging growth of its tax base. • Unnecessary or excessive Federal credit activities have been eliminated or cut back. Improvements in the management and control of Federal credit activities are being pursued. The administration has supported the basic intent of proposed legislation that would move off-budget lending onto the unified budget, in order to provide better budgetary control over Federal lending. • Proliferation of regulations and red tape has been stopped. The number of new Federal rules has fallen by over a quarter during the past three years, and hundreds of unnecessary old rules have been eliminated. For the first time, the Federal Register of new regulatory actions has grown shorter for three consecutive years; it is now one-third shorter than in 1980. Federal paperwork requirements have been cut by well over 300 million hours annually, and will be reduced even further in 1984. This has saved the American public over 150,000 work-years that had been spent every year filling out unnecessary Federal forms and reports. Our regulatory reform efforts to date will save individual citizens, businesses, and State and local governments over $150 billion over the next decade. Major management improvement initiatives are underway that will fundamentally change the way the Federal Government operates. The President's Council on Integrity and Efficiency has reported $31 billion in cost reductions or funds put to better use. • The Federal nondefense work force has been reduced by 71,000 employees since I took office. These are impressive accomplishments-accomplishments to be proud of and to build on. And together we can build on them. With this budget I call on all Members of the Congress once again for additional steps to ensure the firmness of our foundations and overcome the Nation's budget problem. MAINTAINING ECONOMIC RECOVERY Before us stands the prospect of an extended era of peace, prosperity, growth, and a rising standard of living for all Americans. What must we do to ensure that that promise shall be realized and enjoyed in the years to come? What must we do to ensure that the high price of adjustment to this new era paid by the Nation in recent years shall not have been paid in vain? All signs point to continued strong economic growth, vigorous investment, and rising productivity, without renewed inflation-all but one. Only the threat of indefinitely prolonged high budget deficits threatens the continuation of sustained noninflationary growth and prosperity. It raises the specter of sharply higher interest rates, choked-off investment, renewed recession, and rising unemployment. This specter must be laid to rest: just as fears of rampant inflation and its attendant evils are being laid to rest; just as fears of helplessness before growth in Soviet military might and all it threatens are being laid to rest; just as fears that the Nation's social security system would "go under" have been laid to rest. A number of actions will be required to lay it to rest. This budget requests these actions of Congress; it calls for measures to continue to curb the upward momentum of Federal spending and to increase Federal receipts. Other actions involve such fundamental reform of our fiscal procedures that they will require that the Constitution be amended. Congress has each year enacted a portion of my budget proposals, while ignoring others for the time being. It is moving slowly, year by year, toward the full needed set of budget adjustments. I urge the Congress to enact this year not only the proposals contained in this budget, but also constitutional amendments providing for a line-item veto and for a balanced budget-rather than the fitful policy of enacting a half-hearted reform this year, another one next year, and so on. Where Congress lacks the will to enforce upon itself the strict fiscal diet that is now necessary, it needs the help of the Executive Branch. We need a constitutional amendment granting the President power to veto individual items in appropriations bills. Fortythree of the fifty States give this authority to their governors. Congress has approved a line item veto for the District of Columbia, Puerto Rico, and the trust territories. It is now time for Congress to grant this same authority to the President. As Governor of California, I was able to use the line-item veto as a powerful tool against wasteful government spending. It works, and works well, in State government. Every number in this document bears testimony to the urgent need for the Federal Government to adopt this fundamental fiscal reform. Let us also heed the people and finally support a constitutional amendment mandating balanced Federal budgets and spending limits. I encourage our citizens to keep working for this at the grassroots. If you want to make it happen, it will happen. We must seek a bipartisan basis for fundamental reforms of Government spending programs. We need to reexamine just what, how, and how much the Federal Government should be doinggiven our need for security and well-being and our desire to leave power and resources with the people. The President's Private Sector Survey on Cost Control (Grace Commission) has already come up with some interesting suggestions in this regard that, with the help of the Congress, will be adopted wherever possible. To those who say we must raise taxes, I say wait. Tax increases pile unfair burdens on the people, hurt capital formation, and destroy incentives for growth. Tax cuts helped sustain the recovery, leading to faster growth and more jobs. Rather than risk sabotaging our future, let us go forward with an historic reform for fair |