Speech Transcript:

 I congratulate you all - not merely on your electoral victory but on
your selected role in history. For you and I are privileged to serve
the great Republic in what could be the most decisive decade in its
long history. The choices we make, for good or ill, may well shape
the state of the Union for generations yet to come.

Little more than 100 weeks ago I assumed the office of President of
the United States. In seeking the help of the Congress and our
countrymen, I pledged no easy answers. I pledged - and asked - only
toil and dedication. These the Congress and the people have given in
good measure. And today, having witnessed in recent months a
heightened respect for our national purpose and power - having seen
the courageous calm of a united people in a perilous hour - and
having observed a steady improvement in the opportunities and
well-being of our citizens - I can report to you that the state of
this old but youthful Union, in the 175th year of its life, is good.

In the world beyond our borders, steady progress has been made in
building a world of order. The people of West Berlin remain both free
and secure. A settlement, though still precarious, has been reached in
Laos. The spear point of aggression has been blunted in Viet Nam. The
end of agony may be in sight in the Congo. The doctrine of troika is
dead. And, while danger continues, a deadly threat has been removed
in Cuba.

At home, the recession is behind us. Well over a million more men and
women are working today than were working 2 years ago. The average
factory workweek is once again more than 40 hours; our industries are
turning out more goods than ever before; and more than half of the
manufacturing capacity that lay silent and wasted 100 weeks ago is
humming with activity.

In short, both at home and abroad, there may now be a temptation to
relax. For the road has been long, the burden heavy, and the pace
consistently urgent.

But we cannot be satisfied to rest here. This is the side of the
hill, not the top. The mere absence of war is not peace. The mere
absence of recession is not growth. We have made a beginning - but we
have only begun.

Now the time has come to make the most of our gains - to translate
the renewal of our national strength into the achievement of our
national purpose.

America has enjoyed 22 months of uninterrupted economic recovery. But
recovery is not enough. If we are to prevail in the long run, we must
expand the long-run strength of our economy. We must move along the
path to a higher rate of growth and full employment.

For this would mean tens of billions of dollars more each year in
production, profits, wages, and public revenues. It would mean an end
to the persistent slack which has kept our unemployment at or above 5
percent for 61 out of the past 62 months - and an end to the growing
pressures for such restrictive measures as the 35-hour week, which
alone could increase hourly labor costs by as much as 14 percent,
start a new wage-price spiral of inflation, and undercut our efforts
to compete with other nations.

To achieve these greater gains, one step, above all, is essential -
the enactment this year of a substantial reduction and revision in
Federal income taxes.

For it is increasingly clear - to those in Government, business, and
labor who are responsible for our economy's success - that our
obsolete tax system exerts too heavy a drag on private purchasing
power, profits, and employment. Designed to check inflation in
earlier years, it now checks growth instead. It discourages extra
effort and risk. It distorts the use of resources. It invites
recurrent recessions, depresses our Federal revenues, and causes
chronic budget deficits.

Now, when the inflationary pressures of the war and the post-war
years no longer threaten, and the dollar commands new respect - now,
when no military crisis strains our resources - now is the time to
act. We cannot afford to be timid or slow. For this is the most
urgent task confronting the Congress in 1963.

In an early message, I shall propose a permanent reduction in tax
rates which will lower liabilities by $13.5 billion. Of this, $11
billion results from reducing individual tax rates, which now range
between 20 and 91 percent, to a more sensible range of 14 to 65
percent, with a split in the present first bracket. Two and one-half
billion dollars results from reducing corporate tax rates, from 52
percent - which gives the Government today a majority interest in
profits - to the permanent pre-Korean level of 47 percent. This is in
addition to the more than $2 billion cut in corporate tax liabilities
resulting from last year's investment credit and depreciation
reform.

To achieve this reduction within the limits of a manageable budgetary
deficit, I urge: first, that these cuts be phased over 3 calendar
years, beginning in 1963 with a cut of some $6 billion at annual
rates; second, that these reductions be coupled with selected
structural changes, beginning in 1964, which will broaden the tax
base, end unfair or unnecessary preferences, remove or lighten
certain hardships, and in the net offset some $3.5 billion of the
revenue loss; and third, that budgetary receipts at the outset be
increased by $1.5 billion a year, without any change in tax
liabilities, by gradually shifting the tax payments of large
corporations to a more current time schedule. This combined program,
by increasing the amount of our national income, will in time result
in still higher Federal revenues. It is a fiscally responsible
program - the surest and the soundest way of achieving in time a
balanced budget in a balanced full employment economy.

This net reduction in tax liabilities of $10 billion will increase
the purchasing power of American families and business enterprises in
every tax bracket, with greatest increase going to our low-income
consumers. It will, in addition, encourage the initiative and
risk-taking on which our free system depends - induce more
investment, production, and capacity use - help provide the 2 million
new jobs we need every year - and reinforce the American principle of
additional reward for additional effort.

I do not say that a measure for tax reduction and reform is the only
way to achieve these goals.

   1. No doubt a massive increase in Federal spending could also
create jobs and growth - but, in today's setting, private consumers,
employers, and investors should be given a full opportunity first.
   2. No doubt a temporary tax cut could provide a spur to our
economy - but a long-run problem compels a long-run solution.
   3. No doubt a reduction in either individual or corporation taxes
alone would be of great help - but corporations need customers and
job seekers need jobs.
   4. No doubt tax reduction without reform would sound simpler and
more attractive to many - but our growth is also hampered by a host
of tax inequities and special preferences which have distorted the
flow of investment.
   5. And, finally, there are no doubt some who would prefer to put
off a tax cut in the hope that ultimately an end to the cold war
would make possible an equivalent cut in expenditures - but that end
is not in view and to wait for it would be costly and self-defeating.


In submitting a tax program which will, of course, temporarily
increase the deficit but can ultimately end it - and in recognition
of the need to control expenditures - I will shortly submit a fiscal
1964 administrative budget which, while allowing for needed rises in
defense, space, and fixed interest charges, holds total expenditures
for all other purposes below this year's level.

This requires the reduction or postponement of many desirable
programs, the absorption of a large part of last year's Federal pay
raise through personnel and other economies, the termination of
certain installations and projects, and the substitution in several
programs of private for public credit. But I am convinced that the
enactment this year of tax reduction and tax reform overshadows all
other domestic problems in this Congress. For we cannot for long lead
the cause of peace and freedom, if we ever cease to set the pace here
at home. Tax reduction alone, however, is not enough to strengthen
our society, to provide opportunities for the four million Americans
who are born every year, to improve the lives of 32 million Americans
who live on the outskirts of poverty.

The quality of American life must keep pace with the quantity of
American goods.

This country cannot afford to be materially rich and spiritually
poor.

Therefore, by holding down the budgetary cost of existing programs to
keep within the limitations I have set, it is both possible and
imperative to adopt other new measures that we cannot afford to
postpone.

These measures are based on a series of fundamental premises, grouped
under four related headings: First, we need to strengthen our Nation
by investing in our youth:

   1. The future of any country which is dependent upon the will and
wisdom of its citizens is damaged, and irreparably damaged, whenever
any of its children is not educated to the full extent of his talent,
from grade school through graduate school. Today, an estimated 4 out
of every 10 students in the 5th grade will not even finish high
school - and that is a waste we cannot afford.
   2. In addition, there is no reason why one million young
Americans, out of school and out of work, should all remain unwanted
and often untrained on our city streets when their energies can be
put to good use.
   3. Finally, the overseas success of our Peace Corps volunteers,
most of them young men and women carrying skills and ideas to needy
people, suggests the merit of a similar corps serving our own
community needs: in mental hospitals, on Indian reservations, in
centers for the aged or for young delinquents, in schools for the
illiterate or the handicapped. As the idealism of our youth has
served world peace, so can it serve the domestic tranquility. 

Second, we need to strengthen our Nation by safeguarding its health:

   1. Our working men and women, instead of being forced to beg for
help from public charity once they are old and ill, should start
contributing now to their own retirement health program through the
Social Security System.
   2. Moreover, all our miracles of medical research will count for
little if we cannot reverse the growing nationwide shortage of
doctors, dentists, and nurses, and the widespread shortages of
nursing homes and modern urban hospital facilities. Merely to keep
the present ratio of doctors and dentists from declining any further,
we must over the next 10 years increase the capacity of our medical
schools by 50 percent and our dental schools by 100 percent.
   3. Finally, and of deep concern, I believe that the abandonment of
the mentally ill and the mentally retarded to the grim mercy of
custodial institutions too often inflicts on them and on their
families a needless cruelty which this Nation should not endure. The
incidence of mental retardation in this country is three times as
high as that of Sweden, for example - and that figure can and must be
reduced.

Third, we need to strengthen our Nation by protecting the basic
rights of its citizens:

   1. The right to competent counsel must be assured to every man
accused of crime in Federal court, regardless of his means.
   2. And the most precious and powerful right in the world, the
right to vote in a free American election, must not be denied to any
citizen on grounds of his race or color. I wish that all qualified
Americans permitted to vote were willing to vote, but surely in this
centennial year of Emancipation all those who are willing to vote
should always be permitted. 

Fourth, we need to strengthen our Nation by making the best and the
most economical use of its resources and facilities:

   1. Our economic health depends on healthy transportation arteries;
and I believe the way to a more modern, economical choice of national
transportation service is through increased competition and decreased
regulation. Local mass transit, faring even worse, is as essential a
community service as hospitals and highways. Nearly three-fourths of
our citizens live in urban areas, which occupy only 2 percent of our
land - and if local transit is to survive and relieve the congestion
of these cities, it needs Federal stimulation and assistance.
   2. Next, this Government is in the storage and stockpile business
to the melancholy tune of more than $16 billion. We must continue to
support farm income, but we should not pile more farm surpluses on
top of the $7.5 billion we already own. We must maintain a stockpile
of strategic materials, but the $8.5 billion we have acquired - for
reasons both good and bad - is much more than we need; and we should
be empowered to dispose of the excess in ways which will not cause
market disruption.
   3. Finally, our already overcrowded national parks and recreation
areas will have twice as many visitors 10 years from now as they do
today. If we do not plan today for the future growth of these and
other great natural assets - not only parks and forests but wildlife
and wilderness preserves, and water projects of all kinds - our
children and their children will be poorer in every sense of the
word. 

These are not domestic concerns alone. For upon our achievement of
greater vitality and strength here at home hang our fate and future
in the world: our ability to sustain and supply the security of free
men and nations, our ability to command their respect for our
leadership, our ability to expand our trade without threat to our
balance of payments, and our ability to adjust to the changing
demands of cold war competition and challenge.

We shall be judged more by what we do at home than by what we preach
abroad. Nothing we could do to help the developing countries would
help them half as much as a booming U.S. economy. And nothing our
opponents could do to encourage their own ambitions would encourage
them half as much as a chronic lagging U.S. economy. These domestic
tasks do not divert energy from our security - they provide the very
foundation for freedom's survival and success.

Turning to the world outside, it was only a few years ago - in
Southeast Asia, Africa, Eastern Europe, Latin America, even outer
space - that communism sought to convey the image of a unified,
confident, and expanding empire, closing in on a sluggish America and
a free world in disarray. But few people would hold to that picture
today.

In these past months we have reaffirmed the scientific and military
superiority of freedom. We have doubled our efforts in space, to
assure us of being first in the future. We have undertaken the most
far-reaching defense improvements in the peacetime history of this
country. And we have maintained the frontiers of freedom from Viet
Nam to West Berlin.

But complacency or self-congratulation can imperil our security as
much as the weapons of tyranny. A moment of pause is not a promise of
peace. Dangerous problems remain from Cuba to the South China Sea. The
world's prognosis prescribes, in short, not a year's vacation for us,
but a year of obligation and opportunity.

Four special avenues of opportunity stand out: the Atlantic Alliance,
the developing nations, the new Sino-Soviet difficulties, and the
search for worldwide peace. First, how fares the grand alliance? Free
Europe is entering into a new phase of its long and brilliant history.
The era of colonial expansion has passed; the era of national
rivalries is fading; and a new era of interdependence and unity is
taking shape. Defying the old prophecies of Marx, consenting to what
no conqueror could ever compel, the free nations of Europe are moving
toward a unity of purpose and power and policy in every sphere of
activity.

For 17 years this movement has had our consistent support, both
political and economic. Far from resenting the new Europe, we regard
her as a welcome partner, not a rival. For the road to world peace
and freedom is still long, and there are burdens which only full
partners can share - in supporting the common defense, in expanding
world trade, in aligning our balance of payments, in aiding the
emergent nations, in concerting political and economic policies, and
in welcoming to our common effort other industrialized nations,
notably Japan, whose remarkable economic and political development of
the 1950's permits it now to play on the world scene a major
constructive role.

No doubt differences of opinion will continue to get more attention
than agreements on action, as Europe moves from independence to more
formal interdependence. But these are honest differences among
honorable associates - more real and frequent, in fact, among our
Western European allies than between them and the United States. For
the unity of freedom has never relied on uniformity of opinion. But
the basic agreement of this alliance on fundamental issues
continues.

The first task of the alliance remains the common defense. Last month
Prime Minister Macmillan and I laid plans for a new stage in our long
cooperative effort, one which aims to assist in the wider task of
framing a common nuclear defense for the whole alliance.

The Nassau agreement recognizes that the security of the West is
indivisible, and so must be our defense. But it also recognizes that
this is an alliance of proud and sovereign nations, and works best
when we do not forget it. It recognizes further that the nuclear
defense of the West is not a matter for the present nuclear powers
alone - that France will be such a power in the future - and that
ways must be found without increasing the hazards of nuclear
diffusion, to increase the role of our other partners in planning,
manning, and directing a truly multilateral nuclear force within an
increasingly intimate NATO alliance. Finally, the Nassau agreement
recognizes that nuclear defense is not enough, that the agreed NATO
levels of conventional strength must be met, and that the alliance
cannot afford to be in a position of having to answer every threat
with nuclear weapons or nothing.

We remain too near the Nassau decisions, and too far from their full
realization, to know their place in history. But I believe that, for
the first time, the door is open for the nuclear defense of the
alliance to become a source of confidence, instead of a cause of
contention.

The next most pressing concern of the alliance is our common economic
goals of trade and growth. This Nation continues to be concerned about
its balance-of-payments deficit, which, despite its decline, remains a
stubborn and troublesome problem. We believe, moreover, that closer
economic ties among all free nations are essential to prosperity and
peace. And neither we nor the members of the European Common Market
are so affluent that we can long afford to shelter high cost farms or
factories from the winds of foreign competition, or to restrict the
channels of trade with other nations of the free world. If the Common
Market should move toward protectionism and restrictionism, it would
undermine its own basic principles. This Government means to use the
authority conferred on it last year by the Congress to encourage
trade expansion on both sides of the Atlantic and around the world.
Second, what of the developing and non-aligned nations? They were
shocked by the Soviets' sudden and secret attempt to transform Cuba
into a nuclear striking base - and by Communist China's arrogant
invasion of India. They have been reassured by our prompt assistance
to India, by our support through the United Nations of the Congo's
unification, by our patient search for disarmament, and by the
improvement in our treatment of citizens and visitors whose skins do
not happen to be white. And as the older colonialism recedes, and the
neo-colonialism of the Communist powers stands out more starkly than
ever, they realize more clearly that the issue in the world struggle
is not communism versus capitalism, but coercion versus free choice.

They are beginning to realize that the longing for independence is
the same the world over, whether it is the independence of West
Berlin or Viet Nam. They are beginning to realize that such
independence runs athwart all Communist ambitions but is in keeping
with our own - and that our approach to their diverse needs is
resilient and resourceful, while the Communists are still relying on
ancient doctrines and dogmas.

Nevertheless it is hard for any nation to focus on an external or
subversive threat to its independence when its energies are drained
in daily combat with the forces of poverty and despair. It makes
little sense for us to assail, in speeches and resolutions, the
horrors of communism, to spend $50 billion a year to prevent its
military advance - and then to begrudge spending, largely on American
products, less than one-tenth of that amount to help other nations
strengthen their independence and cure the social chaos in which
communism always has thrived.

I am proud - and I think most Americans are proud - of a mutual
defense and assistance program, evolved with bipartisan support in
three administrations, which has, with all its recognized problems,
contributed to the fact that not a single one of the nearly fifty
U.N. members to gain independence since the Second World War has
succumbed to Communist control.

I am proud of a program that has helped to arm and feed and clothe
millions of people who live on the front lines of freedom.

I am especially proud that this country has put forward for the 60's
a vast cooperative effort to achieve economic growth and social
progress throughout the Americas - the Alliance for Progress.

I do not underestimate the difficulties that we face in this mutual
effort among our close neighbors, but the free states of this
hemisphere, working in close collaboration, have begun to make this
alliance a living reality. Today it is feeding one out of every four
school age children in Latin America an extra food ration from our
farm surplus. It has distributed 1.5 million school books and is
building 17,000 classrooms. It has helped resettle tens of thousands
of farm families on land they can call their own. It is stimulating
our good neighbors to more self-help and self-reform - fiscal,
social, institutional, and land reforms. It is bringing new housing
and hope, new health and dignity, to millions who were forgotten. The
men and women of this hemisphere know that the alliance cannot succeed
if it is only another name for United States handouts - that it can
succeed only as the Latin American nations themselves devote their
best effort to fulfilling its goals.

This story is the same in Africa, in the Middle East, and in Asia.
Wherever nations are willing to help themselves, we stand ready to
help them build new bulwarks of freedom. We are not purchasing votes
for the cold war; we have gone to the aid of imperiled nations,
neutrals and allies alike. What we do ask - and all that we ask - is
that our help be used to best advantage, and that their own efforts
not be diverted by needless quarrels with other independent nations.

Despite all its past achievements, the continued progress of the
mutual assistance program requires a persistent discontent with
present performance. We have been reorganizing this program to make
it a more effective, efficient instrument - and that process will
continue this year.

But free world development will still be an uphill struggle.
Government aid can only supplement the role of private investment,
trade expansion, commodity stabilization, and, above all, internal
self-improvement. The processes of growth are gradual - bearing fruit
in a decade, not a day. Our successes will be neither quick nor
dramatic. But if these programs were ever to be ended, our failures
in a dozen countries would be sudden and certain.

Neither money nor technical assistance, however, can be our only
weapon against poverty. In the end, the crucial effort is one of
purpose, requiring the fuel of finance but also a torch of idealism.
And nothing carries the spirit of this American idealism more
effectively to the far corners of the earth than the American Peace
Corps.

A year ago, less than 900 Peace Corps volunteers were on the job. A
year from now they will number more than 9,000 - men and women, aged
18 to 79, willing to give 2 years of their lives to helping people in
other lands.

There are, in fact, nearly a million Americans serving their country
and the cause of freedom in overseas posts, a record no other people
can match. Surely those of us who stay at home should be glad to help
indirectly; by supporting our aid programs; by opening our doors to
foreign visitors and diplomats and students; and by proving, day by
day, by deed as well as word, that we are a just and generous people.
Third, what comfort can we take from the increasing strains and
tensions within the Communist bloc? Here hope must be tempered with
caution. For the Soviet-Chinese disagreement is over means, not ends.
A dispute over how best to bury the free world is no grounds for
Western rejoicing.

Nevertheless, while a strain is not a fracture, it is clear that the
forces of diversity are at work inside the Communist camp, despite
all the iron disciplines of regimentation and all the iron dogmatisms
of ideology. Marx is proven wrong once again: for it is the closed
Communist societies, not the free and open societies which carry
within themselves the seeds of internal disintegration.

The disarray of the Communist empire has been heightened by two other
formidable forces. One is the historical force of nationalism - and
the yearning of all men to be free. The other is the gross
inefficiency of their economies. For a closed society is not open to
ideas of progress - and a police state finds that it cannot command
the grain to grow.

New nations asked to choose between two competing systems need only
compare conditions in East and West Germany, Eastern and Western
Europe, North and South Viet Nam. They need only compare the
disillusionment of Communist Cuba with the promise of the Alliance
for Progress. And all the world knows that no successful system
builds a wall to keep its people in and freedom out - and the wall of
shame dividing Berlin is a symbol of Communist failure. Finally, what
can we do to move from the present pause toward enduring peace? Again
I would counsel caution. I foresee no spectacular reversal in
Communist methods or goals. But if all these trends and developments
can persuade the Soviet Union to walk the path of peace, then let her
know that all free nations will journey with her. But until that
choice is made, and until the world can develop a reliable system of
international security, the free peoples have no choice but to keep
their arms nearby.

This country, therefore, continues to require the best defense in the
world - a defense which is suited to the sixties. This means,
unfortunately, a rising defense budget - for there is no substitute
for adequate defense, and no "bargain basement" way of achieving it.
It means the expenditure of more than $15 billion this year on
nuclear weapons systems alone, a sum which is about equal to the
combined defense budgets of our European Allies.

But it also means improved air and missile defenses, improved civil
defense, a strengthened anti-guerrilla capacity and, of prime
importance, more powerful and flexible non-nuclear forces. For
threats of massive retaliation may not deter piecemeal aggression -
and a line of destroyers in a quarantine, or a division of
well-equipped men on a border, may be more useful to our real
security than the multiplication of awesome weapons beyond all
rational need. But our commitment to national safety is not a
commitment to expand our military establishment indefinitely. We do
not dismiss disarmament as merely an idle dream. For we believe that,
in the end, it is the only way to assure the security of all without
impairing the interests of any. Nor do we mistake honorable
negotiation for appeasement. While we shall never weary in the
defense of freedom, neither shall we ever abandon the pursuit of
peace.

In this quest, the United Nations requires our full and continued
support. Its value in serving the cause of peace has been shown anew
in its role in the West New Guinea settlement, in its use as a forum
for the Cuban crisis, and in its task of unification in the Congo.
Today the United Nations is primarily the protector of the small and
the weak, and a safety valve for the strong. Tomorrow it can form the
framework for a world of law - a world in which no nation dictates the
destiny of another, and in which the vast resources now devoted to
destructive means will serve constructive ends.

In short, let our adversaries choose. If they choose peaceful
competition, they shall have it. If they come to realize that their
ambitions cannot succeed - if they see their "wars of liberation" and
subversion will ultimately fail - if they recognize that there is more
security in accepting inspection than in permitting new nations to
master the black arts of nuclear war - and if they are willing to
turn their energies, as we are, to the great unfinished tasks of our
own peoples - then, surely, the areas of agreement can be very wide
indeed: a clear understanding about Berlin, stability in Southeast
Asia, an end to nuclear testing, new checks on surprise or accidental
attack, and, ultimately, general and complete disarmament. For we seek
not the worldwide victory of one nation or system but a worldwide
victory of man. The modern globe is too small, its weapons are too
destructive, and its disorders are too contagious to permit any other
kind of victory.

To achieve this end, the United States will continue to spend a
greater portion of its national production than any other people in
the free world. For 15 years no other free nation has demanded so
much of itself. Through hot wars and cold, through recession and
prosperity, through the ages of the atom and outer space, the
American people have never faltered and their faith has never
flagged. If at times our actions seem to make life difficult for
others, it is only because history has made life difficult for us
all.

But difficult days need not be dark. I think these are proud and
memorable days in the cause of peace and freedom. We are proud, for
example, of Major Rudolf Anderson who gave his life over the island
of Cuba. We salute Specialist James Allen Johnson who died on the
border of South Korea. We pay honor to Sergeant Gerald Pendell who
was killed in Viet Nam. They are among the many who in this century,
far from home, have died for our country. Our task now, and the task
of all Americans is to live up to their commitment.

My friends: I close on a note of hope. We are not lulled by the
momentary calm of the sea or the somewhat clearer skies above. We
know the turbulence that lies below, and the storms that are beyond
the horizon this year. But now the winds of change appear to be
blowing more strongly than ever, in the world of communism as well as
our own. For 175 years we have sailed with those winds at our back,
and with the tides of human freedom in our favor. We steer our ship
with hope, as Thomas Jefferson said, "leaving Fear astern."

Today we still welcome those winds of change - and we have every
reason to believe that our tide is running strong. With thanks to
Almighty God for seeing us through a perilous passage, we ask His
help anew in guiding the "Good Ship Union."