Speech Transcript:

 Mr. President, Mr. Speaker, Members of the 95th Congress, ladies and
gentlemen:

Two years ago today we had the first caucus in Iowa, and one year ago
tomorrow, I walked from here to the White House to take up the duties
of President of the United States. I didn't know it then when I
walked, but I've been trying to save energy ever since.

I return tonight to fulfill one of those duties of the Constitution:
to give to the Congress, and to the Nation, information on the state
of the Union.

Militarily, politically, economically, and in spirit, the state of
our Union is sound.

We are a great country, a strong country, a vital and dynamic
country, and so we will remain.

We are a confident people and a hardworking people, a decent and a
compassionate people, and so we will remain.

I want to speak to you tonight about where we are and where we must
go, about what we have done and what we must do. And I want to pledge
to you my best efforts and ask you to pledge yours.

Each generation of Americans has to face circumstances not of its own
choosing, but by which its character is measured and its spirit is
tested.

There are times of emergency, when a nation and its leaders must
bring their energies to bear on a single urgent task. That was the
duty Abraham Lincoln faced when our land was torn apart by conflict
in the War Between the States. That was the duty faced by Franklin
Roosevelt when he led America out of an economic depression and again
when he led America to victory in war.

There are other times when there is no single overwhelming crisis,
yet profound national interests are at stake.

At such times the risk of inaction can be equally great. It becomes
the task of leaders to call forth the vast and restless energies of
our people to build for the future.

That is what Harry Truman did in the years after the Second World
War, when we helped Europe and Japan rebuild themselves and secured
an international order that has protected freedom from aggression.

We live in such times now, and we face such duties.

We've come through a long period of turmoil and doubt, but we've once
again found our moral course, and with a new spirit, we are striving
to express our best instincts to the rest of the world.

There is all across our land a growing sense of peace and a sense of
common purpose. This sense of unity cannot be expressed in programs
or in legislation or in dollars. It's an achievement that belongs to
every individual American. This unity ties together, and it towers
over all our efforts here in Washington, and it serves as an
inspiring beacon for all of us who are elected to serve.

This new atmosphere demands a new spirit, a partnership between those
of us who lead and those who elect. The foundations of this
partnership are truth, the courage to face hard decisions, concern
for one another and the common good over special interests, and a
basic faith and trust in the wisdom and strength and judgment of the
American people.

For the first time in a generation, we are not haunted by a major
international crisis or by domestic turmoil, and we now have a rare
and a priceless opportunity to address persistent problems and
burdens which come to us as a nation, quietly and steadily getting
worse over the years.

As President, I've had to ask you, the Members of Congress, and you,
the American people, to come to grips with some of the most difficult
and hard questions facing our society.

We must make a maximum effort, because if we do not aim for the best,
we are very likely to achieve little. I see no benefit to the country
if we delay, because the problems will only get worse.

We need patience and good will, but we really need to realize that
there is a limit to the role and the function of government.
Government cannot solve our problems, it can't set our goals, it
cannot define our vision. Government cannot eliminate poverty or
provide a bountiful economy or reduce inflation or save our cities or
cure illiteracy or provide energy. And government cannot mandate
goodness. Only a true partnership between government and the people
can ever hope to reach these goals.

Those of us who govern can sometimes inspire, and we can identify
needs and marshal resources, but we simply cannot be the managers of
everything and everybody.

We here in Washington must move away from crisis management, and we
must establish clear goals for the future, immediate and the distant
future, which will let us work together and not in conflict. Never
again should we neglect a growing crisis like the shortage of energy,
where further delay will only lead to more harsh and painful
solutions.

Every day we spend more than $120 million for foreign oil. This slows
our economic growth, it lowers the value of the dollar overseas, and
it aggravates unemployment and inflation here at home.

Now we know what we must do, increase production. We must cut down on
waste. And we must use more of those fuels which are plentiful and
more permanent. We must be fair to people, and we must not disrupt
our Nation's economy and our budget.

Now, that sounds simple. But I recognize the difficulties involved. I
know that it is not easy for the Congress to act. But the fact remains
that on the energy legislation, we have failed the American people.
Almost 5 years after the oil embargo dramatized the problem for us
all, we still do not have a national energy program. Not much longer
can we tolerate this stalemate. It undermines our national interest
both at home and abroad. We must succeed, and I believe we will.

Our main task at home this year, with energy a central element, is
the Nation's economy. We must continue the recovery and further cut
unemployment and inflation.

Last year was a good one for the United States. We reached all of our
major economic goals for 1977. Four million new jobs were created, an
alltime record, and the number of unemployed dropped by more than a
million. Unemployment right now is the lowest it has been since 1974,
and not since World War II has such a high percentage of American
people been employed.

The rate of inflation went down. There was a good growth in business
profits and investments, the source of more jobs for our workers, and
a higher standard of living for all our people. After taxes and
inflation, there was a healthy increase in workers' wages.

And this year, our country will have the first $2 trillion economy in
the history of the world.

Now, we are proud of this progress the first year, but we must do
even better in the future.

We still have serious problems on which all of us must work together.
Our trade deficit is too large. Inflation is still too high, and too
many Americans still do not have a job.

Now, I didn't have any simple answers for all these problems. But we
have developed an economic policy that is working, because it's
simple, balanced, and fair. It's based on four principles:

    * First, the economy must keep on expanding to produce new jobs
and better income, which our people need. The fruits of growth must
be widely shared. More jobs must be made available to those who have
been bypassed until now. And the tax system must be made fairer and
simpler.
    * Secondly, private business and not the Government must lead the
expansion in the future.
    * Third, we must lower the rate of inflation and keep it down.
Inflation slows down economic growth, and it's the most cruel to the
poor and also to the elderly and others who live on fixed incomes.
    * And fourth, we must contribute to the strength of the world
economy.
    *

      I will announce detailed proposals for improving our tax system
later this week. We can make our tax laws fairer, we can make them
simpler and easier to understand, and at the same time, we can, and
we will, reduce the tax burden on American citizens by $25 billion.

      The tax reforms and the tax reductions go together. Only with
the long overdue reforms will the full tax cut be advisable.

      Almost $17 billion in income tax cuts will go to individuals.
Ninety-six percent of all American taxpayers will see their taxes go
down. For a typical family of four, this means an annual saving of
more than $250 a year, or a tax reduction of about 20 percent. A
further $2 billion cut in excise taxes will give more relief and also
contribute directly to lowering the rate of inflation.

      And we will also provide strong additional incentives for
business investment and growth through substantial cuts in the
corporate tax rates and improvement in the investment tax credit.

      Now, these tax proposals will increase opportunity everywhere
in the Nation. But additional jobs for the disadvantaged deserve
special attention.

      We've already passed laws to assure equal access to the voting
booth and to restaurants and to schools, to housing, and laws to
permit access to jobs. But job opportunity, the chance to earn a
decent living, is also a basic human right, which we cannot and will
not ignore.

      A major priority for our Nation is the final elimination of the
barriers that restrict the opportunities available to women and also
to black people and Hispanics and other minorities. We've come a long
way toward that goal. But there is still much to do. What we inherited
from the past must not be permitted to shackle us in the future.

      I'll be asking you for a substantial increase in funds for
public jobs for our young people, and I also am recommending that the
Congress continue the public service employment programs at more than
twice the level of a year ago. When welfare reform is completed, we
will have more than a million additional jobs so that those on
welfare who are able to work can work.

      However, again, we know that in our free society, private
business is still the best source of new jobs. Therefore, I will
propose a new program to encourage businesses to hire young and
disadvantaged Americans. These young people only need skills and a
chance in order to take their place in our economic system. Let's
give them the chance they need. A major step in the right direction
would be the early passage of a greatly improved Humphrey-Hawkins
bill.

      My budget for 1979 addresses these national needs, but it is
lean and tight. I have cut waste wherever possible.

      I am proposing an increase of less than 2 percent after
adjusting for inflation, the smallest increase in the Federal budget
in 4 years.

      Lately, Federal spending has taken a steadily increasing
portion of what Americans produce. Our new budget reverses that
trend, and later I hope to bring the Government's toll down even
further. And with your help, we'll do that.

      In time of high employment and a strong economy, deficit
spending should not be a feature of our budget. As the economy
continues to gain strength and as our unemployment rates continue to
fall, revenues will grow. With careful planning, efficient
management, and proper restraint on spending, we can move rapidly
toward a balanced budget, and we will.

      Next year the budget deficit will be only slightly less than
this year. But one-third of the deficit is due to the necessary tax
cuts that I've proposed. This year the right choice is to reduce the
burden on taxpayers and provide more jobs for our people.

      The third element in our program is a renewed attack on
inflation. We've learned the hard way that high unemployment will not
prevent or cure inflation. Government can help us by stimulating
private investment and by maintaining a responsible economic policy.
Through a new top-level review process, we will do a better job of
reducing Government regulation that drives up costs and drives up
prices.

      But again, Government alone cannot bring down the rate of
inflation. When a level of high inflation is expected to continue,
then companies raise prices to protect their profit margins against
prospective increases in wages and other costs, while workers demand
higher wages as protection against expected price increases. It's
like an escalation in the arms race, and understandably, no one wants
to disarm alone.

      Now, no one firm or a group of workers can halt this process.
It's an effort that we must all make together. I'm therefore asking
government, business, labor, and other groups to join in a voluntary
program to moderate inflation by holding wage and price increases in
each sector of the economy during 1978 below the average increases of
the last 2 years.

      I do not believe in wage and price controls. A sincere
commitment to voluntary constraint provides a way, perhaps the only
way, to fight inflation without Government interference.

      As I came into the Capitol tonight, I saw the farmers, my
fellow farmers, standing out in the snow. I'm familiar with their
problem, and I know from Congress' action that you are too. When I
was running Carters Warehouse, we had spread on our own farms 5-10-15
fertilizer for about $40 a ton. The last time I was home, the price
was about $100 a ton. The cost of nitrogen has gone up 150 percent,
and the price of products that farmers sell has either stayed the
same or gone down a little.

      Now, this past year in 1977, you, the Congress, and I together
passed a new agricultural act. It went into effect October 1. It'll
have its first impact on the 1978 crops. It will help a great deal.
It'll add $6 1/2 billion or more to help the farmers with their price
supports and target prices.

      Last year we had the highest level of exports of farm products
in the history of our country, $24 billion. We expect to have more
this year. We'll be working together. But I think it's incumbent on
us to monitor very carefully the farm situation and continue to work
harmoniously with the farmers of our country. What's best for the
farmers, the farm families, in the long run is also best for the
consumers of our country.

      Economic success at home is also the key to success in our
international economic policy. An effective energy program, strong
investment and productivity, and controlled inflation will provide
[improve] our trade balance and balance it, and it will help to
protect the integrity of the dollar overseas.

      By working closely with our friends abroad, we can promote the
economic health of the whole world, with fair and balanced agreements
lowering the barriers to trade.

      Despite the inevitable pressures that build up when the world
economy suffers from high unemployment, we must firmly resist the
demands for self-defeating protectionism. But free trade must also be
fair trade. And I am determined to protect American industry and
American workers against foreign trade practices which are unfair or
illegal.

      In a separate written message to Congress, I've outlined other
domestic initiatives, such as welfare reform, consumer protection,
basic education skills, urban policy, reform of our labor laws, and
national health care later on this year. I will not repeat these
tonight. But there are several other points that I would like to make
directly to you.

      During these past years, Americans have seen our Government
grow far from us.

      For some citizens, the Government has almost become like a
foreign country, so strange and distant that we've often had to deal
with it through trained ambassadors who have sometimes become too
powerful and too influential, lawyers, accountants, and lobbyists.
This cannot go on.

      We must have what Abraham Lincoln wanted, a government for the
people.

      We've made progress toward that kind of government. You've
given me the authority I requested to reorganize the Federal
bureaucracy. And I am using that authority.

      We've already begun a series of reorganization plans which will
be completed over a period of 3 years. We have also proposed
abolishing almost 500 Federal advisory and other commissions and
boards. But I know that the American people are still sick and tired
of Federal paperwork and redtape. Bit by bit we are chopping down the
thicket of unnecessary Federal regulations by which Government too
often interferes in our personal lives and our personal business.
We've cut the public's Federal paperwork load by more than 12 percent
in less than a year. And we are not through cutting.

      We've made a good start on turning the gobbledygook of Federal
regulations into plain English that people can understand. But we
know that we still have a long way to go.

      We've brought together parts of 11 Government agencies to
create a new Department of Energy. And now it's time to take another
major step by creating a separate Department of Education.

      But even the best organized Government will only be as
effective as the people who carry out its policies. For this reason,
I consider civil service reform to be absolutely vital. Worked out
with the civil servants themselves, this reorganization plan will
restore the merit principle to a system which has grown into a
bureaucratic maze. It will provide greater management flexibility and
better rewards for better performance without compromising job
security.

      Then and only then can we have a government that is efficient,
open, and truly worthy of our people's understanding and respect. I
have promised that we will have such a government, and I intend to
keep that promise.

      In our foreign policy, the separation of people from government
has been in the past a source of weakness and error. In a democratic
system like ours, foreign policy decisions must be able to stand the
test of public examination and public debate. If we make a mistake in
this administration, it will be on the side of frankness and openness
with the American people.

      In our modern world, when the deaths of literally millions of
people can result from a few terrifying seconds of destruction, the
path of national strength and security is identical to the path of
peace.

      Tonight, I am happy to report that because we are strong, our
Nation is at peace with the world.

      We are a confident nation. We've restored a moral basis for our
foreign policy. The very heart of our identity as a nation is our firm
commitment to human rights.

      We stand for human rights because we believe that government
has as a purpose to promote the well-being of its citizens. This is
true in our domestic policy; it's also true in our foreign policy.
The world must know that in support of human rights, the United
States will stand firm.

      We expect no quick or easy results, but there has been
significant movement toward greater freedom and humanity in several
parts of the world.

      Thousands of political prisoners have been freed. The leaders
of the world, even our ideological adversaries, now see that their
attitude toward fundamental human rights affects their standing in
the international community, and it affects their relations with the
United States.

      To serve the interests of every American, our foreign policy
has three major goals.

      The first and prime concern is and will remain the security of
our country.

      Security is based on our national will, and security is based
on the strength of our Armed Forces. We have the will, and militarily
we are very strong.

      Security also comes through the strength of our alliances. We
have reconfirmed our commitment to the defense of Europe, and this
year we will demonstrate that commitment by further modernizing and
strengthening our military capabilities there.

      Security can also be enhanced by agreements with potential
adversaries which reduce the threat of nuclear disaster while
maintaining our own relative strategic capability.

      In areas of peaceful competition with the Soviet Union, we will
continue to more than hold our own.

      At the same time, we are negotiating with quiet confidence,
without haste, with careful determination, to ease the tensions
between us and to ensure greater stability and security.

      The strategic arms limitation talks have been long and
difficult. We want a mutual limit on both the quality and the
quantity of the giant nuclear arsenals of both nations, and then we
want actual reductions in strategic arms as a major step toward the
ultimate elimination of nuclear weapons from the face of the Earth.

      If these talks result in an agreement this year, and I trust
they will, I pledge to you that the agreement will maintain and
enhance the stability of the world's strategic balance and the
security of the United States.

      For 30 years, concerted but unsuccessful efforts have been made
to ban the testing of atomic explosives, both military weapons and
peaceful nuclear devices.

      We are hard at work with Great Britain and the Soviet Union on
an agreement which will stop testing and will protect our national
security and provide for adequate verification of compliance. We are
now making, I believe, good progress toward this comprehensive ban on
nuclear explosions.

      We are also working vigorously to halt the proliferation of
nuclear weapons among the nations of the world which do not now have
them and to reduce the deadly global traffic in conventional arms
sales. Our stand for peace is suspect if we are also the principal
arms merchant of the world. So, we've decided to cut down our arms
transfers abroad on a year-by-year basis and to work with other major
arms exporters to encourage their similar constraint.

      Every American has a stake in our second major goal, a world at
peace. In a nuclear age, each of us is threatened when peace is not
secured everywhere. We are trying to promote harmony in those parts
of the world where major differences exist among other nations and
threaten international peace.

      In the Middle East, we are contributing our good offices to
maintain the momentum of the current negotiations and to keep open
the lines of communication among the Middle Eastern leaders. The
whole world has a great stake in the success of these efforts. This
is a precious opportunity for a historic settlement of a longstanding
conflict, an opportunity which may never come again in our lifetime.

      Our role has been difficult and sometimes thankless and
controversial. But it has been constructive and it has been
necessary, and it will continue.

      Our third major foreign policy goal is one that touches the
life of every American citizen every day, world economic growth and
stability.

      This requires strong economic performance by the industrialized
democracies like ourselves and progress in resolving the global energy
crisis. Last fall, with the help of others, we succeeded in our
vigorous efforts to maintain the stability of the price of oil. But
as many foreign leaders have emphasized to me personally and, I am
sure, to you, the greatest future contribution that America can make
to the world economy would be an effective energy conservation
program here at home. We will not hesitate to take the actions needed
to protect the integrity of the American dollar.

      We are trying to develop a more just international system. And
in this spirit, we are supporting the struggle for human development
in Africa, in Asia, and in Latin America.

      Finally, the world is watching to see how we act on one of our
most important and controversial items of business, approval of the
Panama Canal treaties. The treaties now before the Senate are the
result of the work of four administrations, two Democratic, two
Republican.

      They guarantee that the canal will be open always for
unrestricted use by the ships of the world. Our ships have the right
to go to the head of the line for priority of passage in times of
emergency or need. We retain the permanent right to defend the canal
with our own military forces, if necessary, to guarantee its openness
and its neutrality.

      The treaties are to the clear advantage of ourselves, the
Panamanians, and the other users of the canal. Ratifying the Panama
Canal treaties will demonstrate our good faith to the world,
discourage the spread of hostile ideologies in this hemisphere, and
directly contribute to the economic well-being and the security of
the United States.

      I have to say that that's very welcome applause.

      There were two moments on my recent journey which, for me,
confirmed the final aims of our foreign policy and what it always
must be.

      One was in a little village in India, where I met a people as
passionately attached to their rights and liberties as we are, but
whose children have a far smaller chance for good health or food or
education or human fulfillment than a child born in this country.

      The other moment was in Warsaw, capital of a nation twice
devastated by war in this century. There, people have rebuilt the
city which war's destruction took from them. But what was new only
emphasized clearly what was lost.

      What I saw in those two places crystalized for me the purposes
of our own Nation's policy: to ensure economic justice, to advance
human rights, to resolve conflicts without violence, and to proclaim
in our great democracy our constant faith in the liberty and dignity
of human beings everywhere.

      We Americans have a great deal of work to do together. In the
end, how well we do that work will depend on the spirit in which we
approach it. We must seek fresh answers, unhindered by the stale
prescriptions of the past.

      It has been said that our best years are behind us. But I say
again that America's best is still ahead. We have emerged from bitter
experiences chastened but proud, confident once again, ready to face
challenges once again, and united once again.

      We come together tonight at a solemn time. Last week the Senate
lost a good and honest man, Lee Metcalf of Montana.

      And today, the flag of the United States flew at half-mast from
this Capitol and from American installations and ships all over the
world, in mourning for Senator Hubert Humphrey.

      Because he exemplified so well the joy and the zest of living,
his death reminds us not so much of our own mortality, but of the
possibilities offered to us by life. He always looked to the future
with a special American kind of confidence, of hope and enthusiasm.
And the best way that we can honor him is by following his example.

      Our task, to use the words of Senator Humphrey, is
"reconciliation, rebuilding, and rebirth."

      Reconciliation of private needs and interests into a higher
purpose.

      Rebuilding the old dreams of justice and liberty, and country
and community.

      Rebirth of our faith in the common good.

      Each of us here tonight, and all who are listening in your
homes, must rededicate ourselves to serving the common good. We are a
community, a beloved community, all of us. Our individual fates are
linked, our futures intertwined. And if we act in that knowledge and
in that spirit, together, as the Bible says, we can move mountains.

      Thank you very much.