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Thank you. Mr. Speaker thank you. Thank you very much. Mr. Speaker, Mr. President, Distinguished Members of the Congress, honored guests and fellow citizens:
Today marks my first State of the Union address to you, a constitutional duty as old as our republic itself. President Washington began this tradition in 1790 after reminding the nation that the destiny of self-government and the “preservation of the sacred fire of liberty” is “finally staked on the experiment entrusted to the hands of the American people.” For our friends in the press, who place a high premium on accuracy, let me say: I did not actually hear George Washington say that, but it is a matter of historic record.
But from this podium, Winston Churchill asked the free world to stand together against the onslaught of aggression. Franklin Delano Roosevelt spoke of a day of infamy and summoned a nation to arms. And Douglas MacArthur made an unforgettable farewell to a country he had loved and served so well. Dwight Eisenhower reminded us that peace was purchased only at the price of strength and John F. Kennedy spoke of the burden and glory that is freedom.
When I visited this chamber last year as a newcomer to Washington, critical of past policies which I believe had failed, I proposed a new spirit of partnership between this Congress and this Administration and between Washington and our state and local governments.
In forging this new partnership for America we could achieve the oldest hopes of our republic prosperity for our nation, peace for the world, and the blessings of individual liberty for our children and, someday, for all of humanity.
It’s my duty to report to you tonight on the progress that we have made in our relations with other nations, on the foundation we’ve carefully laid for our economic recovery and, finally, on a bold and spirited initiative that I believe can change the face of American government and make it again the servant of the people.
Seldom have the stakes been higher for America. What we do and say here will make all the difference to auto workers in Detroit, lumberjacks in the Northwest, steelworkers in Steubenville who are in the unemployment lines, to black teen-agers in Newark and Chicago; to hard-pressed farmers and small businessmen and to millions of everyday Americans who harbor the simple wish of a safe and financially secure future for their children.
To understand the State of the Union, we must look not only at where we are and where we’re going but where we’ve been. The situation at this time last year was truly ominous.
The last decade has seen a series of recessions. There was a recession in 1970, in 1974, and again in the spring of 1980. Each time, unemployment increased and inflation soon turned up again. We coined the word “stagflation” to describe this.
Government’s response to these recessions was to pump up the money supply and increase spending.
In the last six months of 1980, as an example, the money supply increased at the fastest rate in postwar history 13 percent. Inflation remained in double digits and Government spending increased at an annual rate of 17 percent. Interest rates reached a staggering 21 1/2 percent. There were eight million unemployed.
Late in 1981, we sank into the present recession largely because continued high interest rates hurt the auto industry and construction. And there was a drop in productivity and the already high unemployment increased.
This time, however, things are different. We have an economic program in place completely different from the artificial quick-fixes of the past. It calls for a reduction of the rate of increase in Government spending, and already that rate has been cut n early in half. But reduced spending alone isn’t enough. We’ve just implemented the first and smallest phase of a three-year tax-rate reduction designed to stimulate the economy and create jobs.
Already interest rates are down to 15 3/4 percent, but they must still go lower. Inflation is down from 12.4 percent to 8.9, and for the month of December it was running at an annualized rate of 5.2 percent.
If we had not acted as we did, things would be far worse for all Americans than they are today. Inflation, taxes and interest rates would all be higher.
A year ago, Americans’ faith in their governmental process was steadily declining. Six out of ten Americans were saying they were pessimistic about their future.
A new kind of defeatism was heard. Some said our domestic problems were uncontrollable that we had to learn to live with the-seemingly endless cycle of high inflation and high unemployment.
There were also pessimistic predictions about the relationship between our Administration and this Congress. It was said we could never work together. Well, those predictions were wrong. The record is clear, and I believe that history will remember this as an era of American renewal, remember this Administration as an Administration of change and remember this Congress as a Congress of destiny.
Together, we not only cut the increase in Government spending nearly in half, we brought about the largest tax reductions and the most sweeping changes in our tax structure since the beginning of this century. And because we indexed future taxes to the r ate of inflation, we took away Government’s built-in profit on inflation and its hidden incentive to grow larger at the expense of American workers.
Together, after 50 years of taking power away from the hands of the people in their states and local communities we have started returning power and resources to them.
Together, we have cut the growth of new Federal regulations nearly in half. In 1981, there were 23,000 fewer pages in the Federal Register, which lists new regulations, than there were in 1980. By deregulating oil, we’ve come closer to achieving energy independence and help bring down the costs of gasoline and heating fuel.
Together, we have created an effective Federal strike force to combat waste and fraud in Government. In just six months it has saved the taxpayers more than $2 billion, and it’s only getting started.
Together, we’ve begun to mobilize the private sector not to duplicate wasteful and discredited Government programs but to bring thousands of Americans into a volunteer effort to help solve many of America’s social problems.
Together, we’ve begun to restore that margin of military safety that insures peace. Our country’s uniform is being worn once again with pride. Together we have made a new beginning, but we have only begun.
No one pretends that the way ahead will be easy. In my inaugural address last year, I warned that the “ills we suffer have come upon us over several decades. They will not go away in days, weeks or months, but they will go away . . . because we as Americans have the capacity now, as we’ve had it in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom.”
The economy will face difficult moments in the months ahead. But, the program for economic recovery that is in place will pull the economy out of its slump and put us on the road to prosperity and stable growth by the latter half of this year.
That is why I can report to you tonight that in the near future the State of the Union and the economy will be better much better if we summon the strength to continue on the course that we’ve charted.
And so the question: If the fundamentals are in place, what now?
Two things. First, we must understand what’s happening at the moment to the economy. Our current problems are not the product of the recovery program that’s only just now getting under way, as some would have you believe; they are the inheritance of decades of tax and tax, and spend and
Second, because our economic problems are deeply rooted and will not respond to quick political fixes, we must stick to our carefully integrated plan for recovery. And that plan is based on four common-sense fundamentals: continued reduction of the growth in Federal spending, preserving the individual and business tax deductions that will stimulate saving and investment, removing unnecessary Federal regulations to spark productivity and maintaining a healthy dollar and a stable monetary policy the latter a responsibility of the Federal Reserve System.
The only alternative being offered to this economic program is a return to the policies that gave us a trillion-dollar debt, runaway inflation, runaway interest rates and unemployment.
The doubters would have us turn back the clock with tax increases that would offset the personal tax-rate reductions already passed by this Congress.
Raise present taxes to cut future deficits, they tell us. Well, I don’t believe we should buy that argument. There are too many imponderables for anyone to predict deficits or surpluses several years ahead with any degree of accuracy. The budget in place when I took office had been projected as balanced. It turned out to have one of the biggest deficits in history. Another example of the imponderables that can make deficit projections highly questionable: A change of only one percentage point in unemployment can alter a deficit up or down by some $25 billion.
As it now stands, our forecasts, which we’re required by law to make, will show major deficits, starting at less than $100 billion and declining, but still too high.
More important, we are making progress with the three keys to reducing deficits: economic growth, lower interest rates and spending control. The policies we have in place will reduce the deficit steadily, surely and, in time, completely.
Higher taxes would not mean lower deficits. If they did, how would we explain tax revenues more than doubled just since 1976, yet in that same six-year period we ran the largest series of deficits in our history. In 1980 tax revenues increased by $54 billion, and in 1980 we had one of our all-time biggest deficits.
Raising taxes won’t balance the budget. It will encourage more Government spending and less private investment. Raising taxes will slow economic growth, reduce production and destroy future jobs, making it more difficult for those without jobs to find them and more likely that those who now have jobs could lose them.
So I will not ask you to try to balance the budget on the backs of the American taxpayers. I will seek no tax increases this year and I have no intention of retreating from our basic program of tax relief. I promised the American people to bring their tax rates down and keep them down to provide them incentives to rebuild our economy, to save, to invest in America’s future. I will stand by my word. Tonight I’m urging the American people: Seize these new opportunities to produce, to save, to invest, and together we’ll make this economy a mighty engine of freedom, hope and prosperity again.
Now the budget deficit this year will exceed our earlier expectations. The recession did that. It lowered revenues and increased costs. To some extent, we’re also victims of our own success. We’ve brought inflation down faster than we thought we could and in doing this we’ve deprived Government of those hidden revenues that occur when inflation pushes people into higher income tax brackets. And the continued high interest rates last year cost the Government about $5 billion more than anticipated.
We must cut out more nonessential Government spending and root out more waste, and we will continue our efforts to reduce the number of employees in the Federal work force by 75,000.
Starting in fiscal 1984, the Federal Government will assume full responsibility for the cost of the rapidly growing Medicaid program to go along with its existing responsibility for Medicare. As part of a financially equal swap, the states will simultaneously take full responsibility for Aid to Families With Dependent Children and food stamps. This will make welfare less costly and more responsive to genuine need because it will be designed and administered closer to the grass roots and the people it serves.
In 1984, the Federal Government will apply the full proceeds from certain excise taxes to a grass roots trust fund that will belong, in fair shares, to the 50 states. The total amount flowing into this fund will be $28 billion a year.
Over the next four years, the states can use this money in either of two ways. If they want to continue receiving Federal grants in such areas as transportation, education and social services, they