This inflation—­which threatens the growth, productivity, and stability of our economy—­requires that we restrain the growth of the budget to the maximum extent consistent with national security and human compassion.  I have done so in my earlier budgets, and in my FY ’82 budget.  However, while restraint is essential to any appropriate economic policy, high inflation cannot be attributed solely to government spending.  The growth in budget outlays has been more the result of economic factors than the cause of them.

We are now in the early stages of economic recovery following a short recession.  Typically, a post-recessionary period has been marked by vigorous economic growth aided by anti-recessionary policy measures such as large tax cuts or big, stimulation spending programs.  I have declined to recommend such actions to stimulate economic activity, because the persistent inflationary pressures that beset our economy today dictate a restrained fiscal policy.

Accordingly, I am asking the Congress to postpone until January 1, 1982, the personal tax reductions I had earlier proposed to take effect on January 1 of this year.

However, my 1982 budget proposes significant tax changes to increase the sources of financing for business investment.  While emphasizing the need for continued fiscal restraint, this budget takes the first major step in a long-term tax reduction program designed to increase capital formation.  The failure of our Nation’s capital stock to grow at a rate that keeps pace with its labor force has clearly been one cause of our productivity slowdown.  Higher investment rates are also critically needed to meet our Nation’s energy needs, and to replace energy-inefficient plants and equipment with new energy-saving physical plants.  The level of investment that is called for will not occur in the absence of policies to encourage it.

Therefore, my budget proposes a major liberalization of tax allowances for depreciation, as well as simplified depreciation accounting, increasing the allowable rates by about 40 percent.  I am also proposing improvements in the investment tax credit, making it refundable, to meet the investment needs of firms with no current earnings.

These two proposals, along with carefully-phased tax reductions for individuals, will improve both economic efficiency and tax equity.  I urge the Congress to enact legislation along the lines and timetable I have proposed.

THE 1982 BUDGET

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.