The FY 1982 budget I have sent to the Congress continues our four-year
policy of prudence and restraint. While the budget deficits during my term
are higher than I would have liked, their size is determined for the most
part by economic conditions. And in spite of these conditions, the relative
size of the deficit continues to decline. In 1976, before I took office,
the budget deficit equalled 4 percent of gross national product. It had
been cut to 2.3 percent in the 1980 fiscal year just ended. My 1982 budget
contains a deficit estimated to be less than 1 percent of our gross
national product.
The rate of growth in Federal spending has been held to a minimum.
Nevertheless, outlays are still rising more rapidly than many had
anticipated, the result of many powerful forces in our society:
We face a threat to our security, as events in Afghanistan, the Middle
East, and Eastern Europe make clear. We have a steadily aging population
and, as a result, the biggest single increase in the Federal budget is the
rising cost of retirement programs, particularly social security. We face
other important domestic needs: to continue responsibility for the
disadvantaged; to provide the capital needed by our cities and our
transportation systems; to protect our environment; to revitalize American
industry; and to increase the export of American goods and services so
essential to the creation of jobs and a trade surplus.
Yet the Federal Government itself may not always be the proper source of
such assistance. For example, it must not usurp functions if they can be
more appropriately decided upon, managed, and financed by the private
sector or by State and local governments. My Administration has always
sought to consider the proper focus of responsibility for the most
efficient resolution of problems.
We have also recognized the need to simplify the system of grants to State
and local governments. I have again proposed several grant consolidations
in the 1982 budget, including a new proposal that would consolidate several
highway programs.
The pressures for growth in Federal use of national resources are great. My
Administration has initiated many new approaches to cope with these
pressures. We started a multi-year budget system, and we began a system for
controlling Federal credit programs. Yet in spite of increasing needs to
limit spending growth, we have consistently adhered to these strong budget
principles:
Our Nation's armed forces must always stand sufficiently strong to deter
aggression and to assure our security. An effective national energy plan is
essential to increase domestic production of oil and gas, to encourage
conservation of our scarce energy resources, to stimulate conversion to
more abundant fuels, and to reduce our trade deficit. The essential human
needs for our citizens must be given the highest priority. The Federal
Government must lead the way in investment in the Nation's technological
future. The Federal Government has an obligation to nurture and protect our
environment--the common resource, birthright, and sustenance of the
American people.
My 1982 budget continues to support these principles. It also proposes
responsible tax reductions to encourage a more productive economy, and
adequate funding of our highest priority programs within an overall policy
of constraint.
Fiscal restraint must be continued in the years ahead. Budgets must be
tight enough to convince those who set wages and prices that the Federal
Government is serious about fighting inflation but not so tight as to choke
off all growth.
Careful budget policy should be supplemented by other measures designed to
reduce inflation at lower cost in lost output and employment. These other
steps include measures to increase investment--such as the tax proposals
included in my 1982 budget--and measures to increase competition and
productivity in our economy. Voluntary incomes policies can also directly
influence wages and prices in the direction of moderation and thereby bring
inflation down faster and at lower cost to the economy. Through a tax-based
incomes policy (TIP) we could provide tax incentives for firms and workers
to moderate their wage and price increases. In the coming years, control of
Federal expenditures can make possible periodic tax reductions. The
Congress should therefore begin now to evaluate the potentialities of a TIP
program so that when the next round of tax reductions is appropriate a TIP
program will be seriously considered.