Ronald Reagan picture

Radio Address to the Nation on Tax Reform

June 07, 1986

My fellow Americans:

I'd like to read to you from a very famous U.S. Government document: "For purposes of Paragraph (3), an organization described in Paragraph (2) shall be deemed to include an organization described in Section 501(c) (4), (5), or (6) which would be described in Paragraph (2) if it were an organization described in Section 509(a)(3)." Not exactly the Declaration of Independence or Lincoln's second inaugural. No, it's the last sentence in section 509(a) of—you guessed it-the Internal Revenue Code. Now why, on a Saturday in the springtime, would I raise such an unpleasant topic as taxes? Well, I wanted you to know that, just for once, the news about taxes is actually good—in fact, "great" might be the word.

You see, if the Congress moves speedily this summer, most of you are going to be getting a reduction in tax rates starting next year. That's because there's a new bill that's going to drastically overhaul the tax code and reduce the current 14 tax rates to only 2—15 percent and 27 percent. That means 80 percent of the American people will be paying the rate of 15 percent or less. For most of you, that's going to be a significant tax cut.

But lower tax rates aren't all. This new legislation raises the personal and dependent's exemption from $1,080 to $2,000 for all but the very richest Americans. It also removes 6 million poor people from the income tax rolls, making it one of the most effective antipoverty programs in our history. And the Council of Economic Advisers tells me that the added incentives and efficiencies in the bill could increase our country's growth rate nearly 10 percent over the next decade. That could mean as many as 4 million new jobs. It could also mean as much as $600 to $900 more real income per household each year; $600 to $900 each year—now, that could come in handy. So, extra money in your pocket, millions of new jobs over the next decade—how could all of this come just from changing the tax code? Well, let me explain.

You see, the current code—taking up loads of shelf space and filled with paragraphs like the one I just read—is hardly a code at all. It's a hodgepodge of special favors, a product of the great Washington taffy-pull: the favor-seeking and influence peddling. So, it's unfair, yes. But even worse, all this special privilege makes the code the single biggest obstacle to economic growth in our nation today. That's because it thwarts the very people who create wealth and generate new jobs, the people who take a risk, go out on their own with a bright idea and start a new business, those darers and dreamers we call entrepreneurs. But to get their businesses up and running these entrepreneurs need capital—seed money. And many potential investors aren't interested in helping the entrepreneurs precisely because the tax code makes it far more profitable to divert their money into nonproductive tax shelters. Because of these shelters—the fancy schemes and fast angles protected and encouraged by the law-there's less investment in the new products and services offered by the entrepreneurs, products and services that would help the consumer and stimulate growth. So, when you get down to it, the tax shelters aren't really just a break for a lucky few; they're a drag on the whole national economy and a form of hidden taxation on us all.

This new bill would change all this. As that pioneer of economic growth, George Gilder, wrote recently in the Wall Street Journal: The new bill would shift the balance of power to productive enterprises, from "the owners of land to the improvers of it, from the experts in sheltering money to the experts in sheltering people, from the structuring of deals to the development of structures."

Right now the Senate has before it an excellent bill framed by Senators Packwood and Long of the Senate Finance Committee and pushed hard by Majority Leader Bob Dole. If we can get that bill adopted, if we can stop the Washington lobbyists from loading it up with the bells and whistles of special privilege, we hope to get the House of Representatives to agree to it in legislative conference. And that means that I could sign that bill by Labor Day. What a way to end the summer. Bipartisanship-Democrats and Republicans pulling together.

But we need your help. You know, there's a story about the candidate for public office who was once asked why he didn't win the election. "A shortage of votes," he replied. Well, that's not as silly as it sounds. I hope each of you will help us out. I hope that you'll join me in supporting tax reform and the booming economic growth that will come with it.

Until next week, thanks again for listening, and God bless you.

Note: The President spoke at 12:06 p.m. from Camp David, MD.

Ronald Reagan, Radio Address to the Nation on Tax Reform Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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