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Deficits are financed by borrowing. Washington is, in fact, the most gargantuan borrower in the country. To finance the current deficit, the Government will have to borrow 60 percent of all private savings-money available for lending and investment in the United States.

At the bottom of a recession Federal borrowing may not seriously affect the cost of funds available to people and businesses.

But as the economy recovers Uncle Sam should get out of credit markets. Money for lending and investment should go to business and industry for new plants, equipment and jobs, to consumers for houses or automobiles.

If that doesn't happen, if Government continues to require more than half of all the credit available-even during economic recovery-interest rates will rise. Rising interest rates will ultimately choke off the recovery. And we will be back on the downward path to economic stagnation.

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Non-defense discretionary spending has borne the brunt of recent budget cuts. Although these programs must still be scrutinized, further cutbacks in them will not solve the crisis. They account for only 14 percent of spending.

Interest on the Federal debt costs another 12 percent, and there's no way to cut that directly.

If we are honestly committed to confronting and solving the deficit crisis, we have to go where the real money is.

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Where the real money is

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here is real money on both the revenue side and the spending side. On the spending side the real money—about 74 percent of the entire Federal budget is in two places: defense spending and entitlement programs.

Defense is now the fastest growing function in the Federal budget. Entitlement programs-the programs that provide billions in payments and benefits to millions of Americans every year-account for almost half of our Federal budget.

The American people have said they want a strong defense and a humane society. These expenditures are expressions of those goals.

To meet the nation's goals, the Government will spend 24 percent of our Gross National Product in the coming year.

But under current tax laws, it will collect only 19 percent of our Gross National Product in tax revenues.

In that gap lies the crisis in deficit spending that threatens all of us. That 5 percent gap amounts to $150 billion in 1983.

And even if we get the recovery most economists are predicting, by 1986 Government spending required by law for defense, entitlements and interest alone will exceed total Federal revenues.

Closing the gap with balance and fairness

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here is only one way to solve the deficit crisis and revive and maintain the strength of America's economy. And that is to start closing the gap between Government spending and Government income with balance and fairness.

And there are only three elements that, together, can be brought to bear on the deficit crisis. Moderating the rate of growth in defense spending. Moderating the growth in entitlement programs. Raising revenues. There is simply not enough flexibility anywhere else.

Defense spending must be subjected to a new and demanding scrutiny. No matter what our positions on defense, it must be examined. On the other hand, no one wants to sacrifice our national security.

And because so much of defense spending is set in advance through massive long-term commitments of money for systems that take years to develop, future results require decisions now.

A strong defense ultimately rests on a strong economy. To support one at the expense of the other is a fool's paradise.

Entitlement programs-those benefits that we the people give ourselves-must undergo the same intense scrutiny. This need not mean cutting benefits now going to people dependent on these programs. No one wants to sacrifice our humane society.

Like defense, much of entitlement spending is determined by decisions made far in advance. Therefore, action must be taken now-before these programs are bankrupt.

The issue in both defense and entitlement programs is: how fast shall these programs continue to grow?

Today we are demanding more from our Government than we are paying for. One way to cut the deficit would be to raise taxes enough to support today's spending levels. But what would be the economic consequences in terms of investment and growth? No one wants to solve today's crisis at the cost of long-term economic stagnation!

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