Speech Transcript:

 The State of the Union is sound. Our economy is recovering from a
recession. A national energy plan is in place and our dependence on
foreign oil is decreasing. We have been at peace for four
uninterrupted years.

But, our Nation has serious problems. Inflation and unemployment are
unacceptably high. The world oil market is increasingly tight. There
are trouble spots throughout the world, and 52 American hostages are
being held in Iran against international law and against every
precept of human affairs.

However, I firmly believe that, as a result of the progress made in
so many domestic and international areas over the past four years,
our Nation is stronger, wealthier, more compassionate and freer than
it was four years ago. I am proud of that fact. And I believe the
Congress should be proud as well, for so much of what has been
accomplished over the past four years has been due to the hard work,
insights and cooperation of Congress. I applaud the Congress for its
efforts and its achievements.

In this State of the Union Message I want to recount the achievements
and progress of the last four years and to offer recommendations to
the Congress for this year. While my term as President will end
before the 97th Congress begins its work in earnest, I hope that my
recommendations will serve as a guide for the direction this country
should take so we build on the record of the past four years.
RECORD OF PROGRESS

When I took office, our Nation faced a number of serious domestic and
international problems:

    * no national energy policy existed, and our dependence on
foreign oil was rapidly increasing;
    * public trust in the integrity and openness of the government
was low;
    * the Federal government was operating inefficiently in
administering essential programs and policies;
    * major social problems were being ignored or poorly addressed by
the Federal government;
    * our defense posture was declining as a result of a defense
budget which was continuously shrinking in real terms;
    * the strength of the NATO Alliance needed to be bolstered;
    * tensions between Israel and Egypt threatened another Middle
East war; and
    * America's resolve to oppose human rights violations was under
serious question.

Over the past 48 months, clear progress has been made in solving the
challenges we found in January of 1977:

    * almost all of our comprehensive energy program have been
enacted, and the Department of Energy has been established to
administer the program;
    * confidence in the government's integrity has been restored, and
respect for the government's openness and fairness has been renewed;
    * the government has been made more effective and efficient: the
Civil Service system was completely reformed for the first time this
century; 14 reorganization initiatives have been proposed to the
Congress, approved, and implemented; two new Cabinet departments have
been created to consolidate and streamline the government's handling
of energy and education problems; inspectors general have been placed
in each Cabinet department to combat fraud, waste and other abuses;
the regulatory process has been reformed through creation of the
Regulatory Council, implementation of Executive Order 12044 and its
requirement for cost-impact analyses, elimination of unnecessary
regulation, and passage of the Regulatory Flexibility Act; procedures
have been established to assure citizen participation in government;
and the airline, trucking, rail and communications industries are
being deregulated;
    * critical social problems, many long ignored by the Federal
government, have been addressed directly; an urban policy was
developed and implemented to reverse the decline in our urban areas;
the Social Security System was refinanced to put it on a sound
financial basis; the Humphrey-Hawkins Full Employment Act was
enacted; Federal assistance for education was expanded by more than
75 percent; the minimum wage was increased to levels needed to ease
the effects of inflation; affirmative action has been pursued
aggressively
    * more blacks, Hispanics and women have been appointed to senior
government positions and to judgeships than at any other time in our
history; the ERA ratification deadline was extended to aid the
ratification effort; and minority business procurement by the Federal
government has more than doubled;
    * the Nation's first sectoral policies were put in place, for the
auto and steel industries, with my Administration demonstrating the
value of cooperation between the government, business and labor;
    * reversing previous trends, real defense spending has increased
every year since 1977; the real increase in FY 1980 defense spending
is well above 3 percent and I expect FY 1981 defense spending to be
even higher; looking ahead, the defense program I am proposing is
premised on a real increase in defense spending over the next five
years of 20 percent or more;
    * the NATO Alliance has proven its unity in responding to the
situations in Eastern Europe and Southwest Asia and in agreeing on
the issues to be addressed in the review of the Helsinki Final Act
currently underway in Madrid;
    * the peace process in the Middle East established at Camp David
and by the Peace Treaty between Egypt and Israel is being buttressed
on two fronts: steady progress in the normalization of
Egyptian-Israeli relations in many fields, and the commitment of both
Egypt and Israel, with United States' assistance, to see through to
successful conclusion the autonomy negotiations for the West Bank and
Gaza;
    * the Panama Canal Treaties have been put into effect, which has
helped to improve relations with Latin America;
    * we have continued this Nation's strong commitment to the
pursuit of human rights throughout the world, evenhandedly and
objectively; our commitment to a worldwide human rights policy has
remained firm; and many other countries have given high priority to
it;
    * our resolve to oppose aggression, such as the illegal invasion
of the Soviet Union into Afghanistan, has been supported by tough
action.

ENSURING ECONOMIC STRENGTH

During the last decade our Nation has withstood a series of economic
shocks unprecedented in peacetime. The most dramatic of these has
been the explosive increases of OPEC oil prices. But we have also
faced world commodity shortages, natural disasters, agricultural
shortages and major challenges to world peace and security. Our
ability to deal with these shocks has been impaired because of a
decrease in the growth of productivity and the persistence of
underlying inflationary forces built up over the past 15 years.

Nevertheless, the economy has proved to be remarkably resilient. Real
output has grown at an average rate of 3 percent per year since I took
office, and employment has grown by 10 percent. We have added about 8
million productive private sector jobs to the economy. However,
unacceptably high inflation-- the most difficult economic problem I
have faced-- persists.

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.
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.

The rate of growth in Federal spending has been held to a minimum.
Nevertheless, outlays are still rising more rapidly than many had
anticipated, the result of many powerful forces in our society:

We face a threat to our security, as events in Afghanistan, the
Middle East, and Eastern Europe make clear. We have a steadily aging
population and, as a result, the biggest single increase in the
Federal budget is the rising cost of retirement programs,
particularly social security. We face other important domestic needs:
to continue responsibility for the disadvantaged; to provide the
capital needed by our cities and our transportation systems; to
protect our environment; to revitalize American industry; and to
increase the export of American goods and services so essential to
the creation of jobs and a trade surplus.

Yet the Federal Government itself may not always be the proper source
of such assistance. For example, it must not usurp functions if they
can be more appropriately decided upon, managed, and financed by the
private sector or by State and local governments. My Administration
has always sought to consider the proper focus of responsibility for
the most efficient resolution of problems.

We have also recognized the need to simplify the system of grants to
State and local governments. I have again proposed several grant
consolidations in the 1982 budget, including a new proposal that
would consolidate several highway programs.

The pressures for growth in Federal use of national resources are
great. My Administration has initiated many new approaches to cope
with these pressures. We started a multi-year budget system, and we
began a system for controlling Federal credit programs. Yet in spite
of increasing needs to limit spending growth, we have consistently
adhered to these strong budget principles:

    * Our Nation's armed forces must always stand sufficiently strong
to deter aggression and to assure our security.
    * An effective national energy plan is essential to increase
domestic production of oil and gas, to encourage conservation of our
scarce energy resources, to stimulate conversion to more abundant
fuels, and to reduce our trade deficit.
    * The essential human needs for our citizens must be given the
highest priority.
    * The Federal Government must lead the way in investment in the
Nation's technological future.
    * The Federal Government has an obligation to nurture and protect
our environment-- the common resource, birthright, and sustenance of
the American people.

My 1982 budget continues to support these principles. It also
proposes responsible tax reductions to encourage a more productive
economy, and adequate funding of our highest priority programs within
an overall policy of constraint.

Fiscal restraint must be continued in the years ahead. Budgets must
be tight enough to convince those who set wages and prices that the
Federal Government is serious about fighting inflation but not so
tight as to choke off all growth.

Careful budget policy should be supplemented by other measures
designed to reduce inflation at lower cost in lost output and
employment. These other steps include measures to increase
investment-- such as the tax proposals included in my 1982 budget--
and measures to increase competition and productivity in our economy.
Voluntary incomes policies can also directly influence wages and
prices in the direction of moderation and thereby bring inflation
down faster and at lower cost to the economy. Through a tax-based
incomes policy (TIP) we could provide tax incentives for firms and
workers to moderate their wage and price increases. In the coming
years, control of Federal expenditures can make possible periodic tax
reductions. The Congress should therefore begin now to evaluate the
potentialities of a TIP program so that when the next round of tax
reductions is appropriate a TIP program will be seriously
considered.
EMPLOYMENT

During the last four years we have given top priority to meeting the
needs of workers and providing additional job opportunities to those
who seek work. Since the end of 1976:

    * almost 9 million new jobs have been added to the nation's
economy
    * total employment has reached 97 million. More jobs than ever
before are held by women, minorities and young people. Employment
over the past four years has increased by:
          o 17% for adult women
          o 11% for blacks, and
          o 30% for Hispanics
          o employment of black teenagers increased by more than 5%,
reversing the decline that occurred in the previous eight years.

Major initiatives launched by this Administration helped bring about
these accomplishments and have provided a solid foundation for
employment and training policy in the 1980's. In 1977, as part of the
comprehensive economic stimulus program:

    * 425,000 public service jobs were created
    * A $1 billion youth employment initiative funded 200,000 jobs
    * the doubling of the Job Corps to 44,000 slots began and 1
million summer youth jobs were approved-- a 25 percent increase.

In 1978:

    * the Humphrey-Hawkins Full Employment Act became law
    * the $400 million Private Sector Initiatives Program was begun
    * a targeted jobs tax credit for disadvantaged youth and others
with special employment barriers was enacted
    * the Comprehensive Employment and Training Act was reauthorized
for four years.

In 1979:

    * a $6 billion welfare reform proposal was introduced with
funding for 400,000 public service jobs
    * welfare reform demonstration projects were launched in
communities around the country
    * the Vice President initiated a nationwide review of youth
unemployment in this country.

In 1980:

    * the findings of the Vice President's Task Force revealed the
major education and employment deficits that exist for poor and
minority youngsters. As a result a $2 billion youth education and
jobs initiative was introduced to provide unemployed youth with the
basic education and work experience they need to compete in the labor
market of the 1980's.
    * As part of the economic revitalization program several steps
were proposed to aid workers in high unemployment communities:

    * an additional 13 weeks of unemployment benefits for the long
term unemployed.
    * $600 million to train the disadvantaged and unemployed for new
private sector jobs.
    * positive adjustment demonstrations to aid workers in declining
industries.
    * The important Title VII Private Sector Initiatives Program was
reauthorized for an additional two years.

In addition to making significant progress in helping the
disadvantaged and unemployed, important gains were realized for all
workers:

    * an historic national accord with organized labor made it
possible for the views of working men and women to be heard as the
nation's economic and domestic policies were formulated.
    * the Mine Safety and Health Act brought about improved working
conditions for the nation's 500,000 miners.
    * substantial reforms of the Occupational Safety and Health
Administration were accomplished to help reduce unnecessary burdens
on business and to focus on major health and safety problems.
    * the minimum wage was increased over a four year period from
$2.30 to $3.35 an hour.
    * the Black Lung Benefit Reform Act was signed into law.
    * attempts to weaken the Davis-Bacon Act were defeated.

While substantial gains have been made in the last four years,
continued efforts are required to ensure that this progress is
continued:

    * government must continue to make labor a full partner in the
policy decisions that affect the interests of working men and women.
    * a broad, bipartisan effort to combat youth unemployment must be
sustained
    * compassionate reform of the nation's welfare system should be
continued with employment opportunities provided for those able to
work.
    * workers in declining industries should be provided new skills
and help in finding employment

TRADE

Over the past year, the U.S. trade picture improved as a result of
solid export gains in both manufactured and agricultural products.
Agricultural exports reached a new record of over $40 billion, while
manufactured exports have grown by 24 percent to a record $144
billion. In these areas the United States recorded significant
surpluses of $24 billion and $19 billion respectively. While our oil
imports remained a major drain on our foreign exchange earnings, that
drain was somewhat moderated by a 19 percent decline in the volume of
oil imports.

U.S. trade negotiators made significant progress over the past year
in assuring effective implementation of the agreements negotiated
during the Tokyo Round of Multilateral Trade Negotiations. Agreements
reached with the Japanese government, for example, will assure that
the United States will be able to expand its exports to the Japanese
market in such key areas as telecommunications equipment, tobacco,
and lumber. Efforts by U.S. trade negotiators also helped to persuade
a number of key developing countries to accept many of the non-tariff
codes negotiated during the Multilateral Trade Negotiations. This
will assure that these countries will increasingly assume obligations
under the international trading system.

A difficult world economic environment posed a challenge for the
management of trade relations. U.S. trade negotiators were called
upon to manage serious sectoral problems in such areas as steel, and
helped to assure that U.S. chemical exports will have continued
access to the European market.

Close consultations with the private sector in the United States have
enabled U.S. trade negotiators to pinpoint obstacles to U.S. trade in
services, and to build a basis for future negotiations. Services have
been an increasingly important source of export earnings for the
United States, and the United States must assure continued and
increased access to foreign markets.

The trade position of the United States has improved. But vigorous
efforts are needed in a number of areas to assure continued market
access for U.S. exports, particularly agricultural and high
technology products, in which the United States continues to have a
strong competitive edge. Continued efforts are also needed to remove
many domestic disincentives, which now hamper U.S. export growth. And
we must ensure that countries do not manipulate investment, or impose
investment performance requirements which distort trade and cost us
jobs in this country.

In short, we must continue to seek free-- but fair-- trade. That is
the policy my Administration has pursued from the beginning, even in
areas where foreign competition has clearly affected our domestic
industry. In the steel industry, for instance, we have put a Trigger
Price Mechanism into place to help prevent the dumping of steel. That
action has strengthened the domestic steel industry. In the automobile
industry, we have worked-- without resort to import quotas-- to
strengthen the industry's ability to modernize and compete
effectively.
SMALL BUSINESS

I have often said that there is nothing small about small business in
America. These firms account for nearly one-half our gross national
product; over half of new technology; and much more than half of the
jobs created by industry.

Because this sector of the economy is the very lifeblood of our
National economy, we have done much together to improve the
competitive climate for smaller firms. These concerted efforts have
been an integral part of my program to revitalize the economy.

They include my campaign to shrink substantially the cash and time
consuming red tape burden imposed on business. They include my
personally-directed policy of ambitiously increasing the Federal
contracting dollars going to small firms, especially those owned by
women and minorities. And they include my proposals to reinvigorate
existing small businesses and assist the creation of new ones through
tax reform; financing assistance; market expansion; and support of
product innovation.

Many of my initiatives to facilitate the creation and growth of small
businesses were made in response to the White House Conference on
Small Business, which I convened. My Administration began the
implementation of most of the ideas produced last year by that
citizen's advisory body; others need to be addressed. I have proposed
the reconvening of the Conference next year to review progress;
reassess priorities; and set new goals. In the interim I hope that
the incoming Administration and the new Congress will work with the
committee I have established to keep these business development ideas
alive and help implement Conference recommendations.
MINORITY BUSINESS

One of the most successful developments of my Administration has been
the growth and strengthening of minority business. This is the first
Administration to put the issue on the policy agenda as a matter of
major importance. To implement the results of our early efforts in
this field I submitted legislation to Congress designed to further
the development of minority business.

We have reorganized the Office of Minority Business into the Minority
Business Development Administration in the Department of Commerce.
MBDA has already proven to be a major factor in assisting minority
businesses to achieve equitable competitive positions in the
marketplace.

The Federal government's procurement from minority-owned firms has
nearly tripled since I took office. Federal deposits in
minority-owned banks have more than doubled and minority ownership of
radio and television stations has nearly doubled. The SBA administered
8(a) Pilot Program for procurement with the Army proved to be
successful and I recently expanded the number of agencies involved to
include NASA and the Departments of Energy and Transportation.

I firmly believe the critical path to full freedom and equality for
America's minorities rests with the ability of minority communities
to participate competitively in the free enterprise system. I believe
the government has a fundamental responsibility to assist in the
development of minority business and I hope the progress made in the
last four years will continue. II.
CREATING ENERGY SECURITY

Since I took office, my highest legislative priorities have involved
the reorientation and redirection of U.S. energy activities and for
the first time, to establish a coordinated national energy policy.
The struggle to achieve that policy has been long and difficult, but
the accomplishments of the past four years make clear that our
country is finally serious about the problems caused by our
overdependence on foreign oil. Our progress should not be lost. We
must rely on and encourage multiple forms of energy production--
coal, crude oil, natural gas, solar, nuclear, synthetics-- and energy
conservation. The framework put in place over the last four years will
enable us to do this.
NATIONAL ENERGY POLICY

As a result of actions my Administration and the Congress have taken
over the past four years, our country finally has a national energy
policy:

    * Under my program of phased decontrol, domestic crude oil price
controls will end September 30, 1981. As a result exploratory
drilling activities have reached an all-time high;
    * Prices for new natural gas are being decontrolled under the
Natural Gas Policy Act -- and natural gas production is now at an all
time high; the supply shortages of several years ago have been
eliminated;
    * The windfall profits tax on crude oil has been enacted
providing $227 billion over ten years for assistance to low-income
households, increased mass transit funding, and a massive investment
in the production and development of alternative energy sources;
    * The Synthetic Fuels Corporation has been established to help
private companies build the facilities to produce energy from
synthetic fuels;
    * Solar energy funding has been quadrupled, solar energy tax
credits enacted, and a Solar Energy and Energy Conservation Bank has
been established;
    * A route has been chosen to bring natural gas from the North
Slope of Alaska to the lower 48 states;
    * Coal production and consumption incentives have been increased,
and coal production is now at its highest level in history;
    * A gasoline rationing plan has been approved by Congress for
possible use in the event of a severe energy supply shortage or
interruption;
    * Gasohol production has been dramatically increased, with a
program being put in place to produce 500 million gallons of alcohol
fuel by the end of this year-- an amount that could enable gasohol to
meet the demand for 10 percent of all unleaded gasoline;
    * New energy conservation incentives have been provided for
individuals, businesses and communities and conservation has
increased dramatically. The U.S. has reduced oil imports by 25
percent-- or 2 million barrels per day-- over the past four years.

INCREASED DEVELOPMENT OF DOMESTIC
ENERGY SOURCES

Although it is essential that the Nation reduce its dependence on
imported fossil fuels and complete the transition to reliance on
domestic renewable sources of energy, it is also important that this
transition be accomplished in an orderly, economic, and
environmentally sound manner. To this end, the Administration has
launched several initiatives.

Leasing of oil and natural gas on federal lands, particularly the
outer continental shelf, has been accelerated at the same time as the
Administration has reformed leasing procedures through the 1978
amendments to the Outer Continental Shelf Lands Act. In 1979 the
Interior Department held six OCS lease sales, the greatest number
ever, which resulted in federal receipts of $6.5 billion, another
record. The five-year OCS Leasing schedule was completed, requiring
36 sales over the next five years.

Since 1971 no general federal coal lease sales were suspended. Over
the past four years the Administration has completely revised the
federal coal leasing program to bring it into compliance with the
requirements of 1976 Federal Land Planning and Management Act and
other statutory provisions. The program is designed to balance the
competing interests that affect resource development on public lands
and to ensure that adequate supplies of coal will be available to
meet national needs. As a result, the first general competitive
federal coal lease sale in ten years will be held this month.

In July 1980, I signed into law the Energy Security Act of 1980 which
established the Synthetic Fuels Corporation. The Corporation is
designed to spur the development of commercial technologies for
production of synthetic fuels, such as liquid and gaseous fuels from
coal and the production of oil from oil shale. The Act provides the
Corporation with an initial $22 billion to accomplish these
objectives. The principal purpose of the legislation is to ensure
that the nation will have available in the late 1980's the option to
undertake commercial development of synthetic fuels if that becomes
necessary. The Energy Security Act also provides significant
incentives for the development of gasohol and biomass fuels, thereby
enhancing the nation's supply of alternative energy sources.
COMMITMENT TO A SUSTAINABLE ENERGY
FUTURE

The Administration's 1977 National Energy Plan marked an historic
departure from the policies of previous Administrations. The plan
stressed the importance of both energy production and conservation to
achieving our ultimate national goal of relying primarily on secure
sources of energy. The National Energy Plan made energy conservation
a cornerstone of our national energy policy.

In 1978, I initiated the Administration's Solar Domestic Policy
Review. This represented the first step towards widespread
introduction of renewable energy sources into the Nation's economy.
As a result of the Review, I issued the 1979 Solar Message to
Congress, the first such message in the Nation's history. The Message
outlined the Administration's solar program and established an
ambitious national goal for the year 2000 of obtaining 20 percent of
this Nation's energy from solar and renewable sources. The thrust of
the federal solar program is to help industry develop solar energy
sources by emphasizing basic research and development of solar
technologies which are not currently economic, such as photovoltaics,
which generate energy directly from the sun. At the same time, through
tax incentives, education, and the Solar Energy and Energy
Conservation Bank, the solar program seeks to encourage state and
local governments, industry, and our citizens to expand their use of
solar and renewable resource technologies currently available.

As a result of these policies and programs, the energy efficiency of
the American economy has improved markedly and investments in
renewable energy sources have grown significantly. It now takes 3 1/2
percent less energy to produce a constant dollar of GNP than it did in
January 1977. This increase in efficiency represents a savings of over
1.3 million barrels per day of oil equivalent, about the level of
total oil production now occurring in Alaska. Over the same period,
Federal support for conservation and solar energy has increased by
more than 3000 percent, to $3.3 billion in FY 1981, including the tax
credits for solar energy and energy conservation investments-- these
credits are expected to amount to $1.2 billion in FY 1981 and $1.5
billion in FY 1982.
COMMITMENT TO NUCLEAR SAFETY AND
SECURITY

Since January 1977, significant progress has been achieved in
resolving three critical problems resulting from the use of nuclear
energy: radioactive waste management, nuclear safety and weapons
proliferation.

In 1977, the Administration announced its nuclear nonproliferation
policy and initiated the International Fuel Cycle Evaluation. In
1978, Congress passed the Nuclear Nonproliferation Act, an historic
piece of legislation.

In February 1980, the Administration transmitted its nuclear waste
management policy to the Congress. This policy was a major advance
over all previous efforts. The principal aspects of that policy are:
acknowledging the seriousness of the problem and the numerous
technical and institutional issues; adopting a technically and
environmentally conservative approach to the first permanent
repository; and providing the states with significant involvement in
nuclear waste disposal decisions by creating the State Planning
Council. While much of the plan can be and is being implemented
administratively, some new authorities are needed. The Congress
should give early priority to enacting provisions for
away-from-reactor storage and the State Planning Council.

The accident at Three Mile Island made the nation acutely aware of
the safety risks posed by nuclear power plants. In response, the
President established the Kemeny Commission to review the accident
and make recommendations. Virtually all of the Commission's
substantive recommendations were adopted by the Administration and
are now being implemented by the Nuclear Regulatory Commission. The
Congress adopted the President's proposed plan for the Nuclear
Regulatory Commission and the Nuclear Safety Oversight Committee was
established to ensure that the Administration's decisions were
implemented.

Nuclear safety will remain a vital concern in the years ahead. We
must continue to press ahead for the safe, secure disposal of
radioactive wastes, and prevention of nuclear proliferation.

While significant growth in foreign demand for U.S. steam coal is
foreseen, congestion must be removed at major U.S. coal exporting
ports such as Hampton Roads, Virginia, and Baltimore, Maryland. My
Administration has worked through the Interagency Coal Task Force
Study to promote cooperation and coordination of resources between
shippers, railroads, vessel broker/ operators and port operators, and
to determine the most appropriate Federal role in expanding and
modernizing coal export facilities, including dredging deeper
channels at selected ports. As a result of the Task Force's efforts,
administrative steps have been taken by the Corps of Engineers to
reduce significantly the amount of time required for planning and
economic review of port dredging proposals. The Administration has
also recommended that the Congress enact legislation to give the
President generic authority to recommend appropriations for channel
dredging activities. Private industry will, of course, play the major
role in developing the United States' coal export facilities, but the
government must continue to work to facilitate transportation to
foreign markets. III.
ENHANCING BASIC HUMAN AND
SOCIAL NEEDS

For too long prior to my Administration, many of our Nation's basic
human and social needs were being ignored or handled insensitively by
the Federal government. Over the last four years, we have
significantly increased funding for many of the vital programs in
these areas; developed new programs where needs were unaddressed;
targeted Federal support to those individuals and areas most in need
of our assistance; and removed barriers that have unnecessarily kept
many disadvantaged citizens from obtaining aid for their most basic
needs.

Our record has produced clear progress in the effort to solve some of
the country's fundamental human and social problems. My Administration
and the Congress, working together, have demonstrated that government
must and can meet our citizens' basic human and social needs in a
responsible and compassionate way.

But there is an unfinished agenda still before the Congress. If we
are to meet our obligations to help all Americans realize the dreams
of sound health care, decent housing, effective social services, a
good education, and a meaningful job, important legislation still
must be enacted. National Health Insurance, Welfare Reform, Child
Health Assessment Program, are before the Congress and I urge their
passage.
HEALTH
NATIONAL HEALTH PLAN

During my Administration, I proposed to Congress a National Health
Plan which will enable the country to reach the goal of
comprehensive, universal health care coverage. The legislation I
submitted lays the foundation for this comprehensive plan and
addresses the most serious problems of health financing and delivery.
It is realistic and enactable. It does not overpromise or overspend,
and, as a result, can be the solution to the thirty years of
Congressional battles on national health insurance. My Plan includes
the following key features:

    * nearly 15 million additional poor would receive
fully-subsidized comprehensive coverage;
    * pre-natal and delivery services are provided for all pregnant
women and coverage is provided for all acute care for infants in
their first year of life;
    * the elderly and disabled would have a limit of $1,250 placed on
annual out-of-pocket medical expenses and would no longer face limits
on hospital coverage;
    * all full-time employees and their families would receive
insurance against at least major medical expenses under mandated
employer coverage;
    * Medicare and Medicaid would be combined and expanded into an
umbrella Federal program, Healthcare, for increased program
efficiency, accountability and uniformity

; and

    * strong cost controls and health system reforms would be
implemented, including greater incentives for Health Maintenance
Organizations.

I urge the new Congress to compare my Plan with the alternatives--
programs which either do too little to improve the health care needs
of Americans most in need or programs which would impose substantial
financial burdens on the American taxpayers. I hope the Congress will
see the need for and the benefits of my Plan and work toward prompt
enactment. We cannot afford further delay in this vital area.
HEALTH CARE COST CONTROL

Inflation in health care costs remains unacceptably high. Throughout
my Administration, legislation to reduce health care cost inflation
was one of my highest priorities, but was not passed by the Congress.
Therefore, my FY 1982 budget proposes sharing the responsibility for
health care cost control with the private sector, through voluntary
hospital cost guidelines and intensified monitoring. In the longer
term, the health care reimbursement system must be reformed. We must
move away from inflationary cost-based reimbursement and
fee-for-service, and toward a system of prospective reimbursement,
under which health care providers would operate within predetermined
budgets. This reimbursement reform is essential to ultimately control
inflation in health care costs, and will be a significant challenge to
the new Congress.
HEALTH PROMOTION AND DISEASE
PREVENTION

During my Administration, the Surgeon General released "Healthy
People," a landmark report on health promotion and disease
prevention. The report signals the growing consensus that the
Nation's health strategy must be refocused in the 1980's to emphasize
the prevention of disease. Specifically, the report lays out
measurable and achieveable goals in the reduction of mortality which
can be reached by 1990.

I urge the new Congress to endorse the principles of "Healthy
People," and to adopt the recommendations to achieve its goals. This
will necessitate adoption of a broader concept of health care, to
include such areas as environmental health, workplace health and
safety, commercial product safety, traffic safety, and health
education, promotion and information.
MATERNAL AND CHILD HEALTH

Ensuring a healthy start in life for children remains not only a high
priority of my Administration, but also one of the most cost effective
forms of health care.

When I took office, immunization levels for preventable childhood
diseases had fallen to 70%. As a result of a concerted nationwide
effort during my Administration, I am pleased to report that now at
least 90% of children under 15, and virtually all school-age children
are immunized. In addition, reported cases of measles and mumps are at
their lowest levels ever.

Under the National Health Plan I have proposed, there would be no
cost-sharing for prenatal and delivery services for all pregnant
women and for acute care provided to infants in their first year of
life. These preventive services have extremely high returns in terms
of improved newborn and long-term child health.

Under the Child Health Assurance Program (CHAP) legislation which I
submitted to the Congress, and which passed the House, an additional
two million low-income children under 18 would become eligible for
Medicaid benefits, which would include special health assessments.
CHAP would also improve the continuity of care for the nearly 14
million children now eligible for Medicaid. An additional 100,000
low-income pregnant women would become eligible for prenatal care
under the proposal. I strongly urge the new Congress to enact CHAP
and thereby provide millions of needy children with essential health
services. The legislation has had strong bipartisan support, which
should continue as the details of the bill are completed.

I also urge the new Congress to provide strong support for two highly
successful ongoing programs: the special supplemental food program for
women, infants and children (WIC) and Family Planning. The food
supplements under WIC have been shown to effectively prevent ill
health and thereby reduce later medical costs. The Family Planning
program has been effective at reducing unwanted pregnancies among
low-income women and adolescents.
EXPANSION OF SERVICES TO THE POOR
AND UNDERSERVED

During my Administration, health services to the poor and underserved
have been dramatically increased. The number of National Health
Service Corps (NHSC) assignees providing services in medically
underserved communities has grown from 500 in 1977 to nearly 3,000 in
1981. The population served by the NHSC has more than tripled since
1977. The number of Community Health Centers providing services in
high priority underserved areas has doubled during my Administration,
and will serve an estimated six million people in 1981. I strongly
urge the new Congress to support these highly successful programs.
MENTAL HEALTH

One of the most significant health achievements during my
Administration was the recent passage of the Mental Health Systems
Act, which grew out of recommendations of my Commission on Mental
Health. I join many others in my gratitude to the First Lady for her
tireless and effective contribution to the passage of this important
legislation.

The Act is designed to inaugurate a new era of Federal and State
partnership in the planning and provision of mental health services.
In addition, the Act specifically provides for prevention and support
services to the chronically mentally ill to prevent unnecessary
institutionalization and for the development of community-based
mental health services. I urge the new Congress to provide adequate
support for the full and timely implementation of this Act.
HEALTH PROTECTION

With my active support, the Congress recently passed "Medigap"
legislation, which provides for voluntary certification of health
insurance policies supplemental to Medicare, to curb widespread
abuses in this area.

In the area of toxic agent control, legislation which I submitted to
the Congress recently passed. This will provide for a "super-fund" to
cover hazardous waste cleanup costs.

In the area of accidental injury control, we have established
automobile safety standards and increased enforcement activities with
respect to the 55 MPH speed limit. By the end of the decade these
actions are expected to save over 13,000 lives and 100,000 serious
injuries each year.

I urge the new Congress to continue strong support for all these
activities.
FOOD AND NUTRITION

Building on the comprehensive reform of the Food Stamp Program that I
proposed and Congress passed in 1977, my Administration and the
Congress worked together in 1979 and 1980 to enact several other
important changes in the Program. These changes will further simplify
administration and reduce fraud and error, will make the program more
responsive to the needs of the elderly and disabled, and will
increase the cap on allowable program expenditures. The Food Stamp
Act will expire at the end of fiscal 1981. It is essential that the
new Administration and the Congress continue this program to ensure
complete eradication of the debilitating malnutrition witnessed and
documented among thousands of children in the 1960's.
DRUG ABUSE PREVENTION

At the beginning of my Administration there were over a half million
heroin addicts in the United States. Our continued emphasis on
reducing the supply of heroin, as well as providing treatment and
rehabilitation to its victims, has reduced the heroin addict
population, reduced the number of heroin overdose deaths by 80%, and
reduced the number of heroin related injuries by 50%. We have also
seen and encouraged a national movement of parents and citizens
committed to reversing the very serious and disturbing trends of
adolescent drug abuse.

Drug abuse in many forms will continue to detract, however, from the
quality of life of many Americans. To prevent that, I see four great
challenges in the years ahead. First, we must deal aggressively with
the supplies of illegal drugs at their source, through joint crop
destruction programs with foreign nations and increased law
enforcement and border interdiction. Second, we must look to citizens
and parents across the country to help educate the increasing numbers
of American youth who are experimenting with drugs to the dangers of
drug abuse. Education is a key factor in reducing drug abuse. Third,
we must focus our efforts on drug and alcohol abuse in the workplace
for not only does this abuse contribute to low productivity but it
also destroys the satisfaction and sense of purpose all Americans can
gain from the work experience. Fourth, we need a change in attitude,
from an attitude which condones the casual use of drugs to one that
recognizes the appropriate use of drugs for medical purposes and
condemns the inappropriate and harmful abuse of drugs. I hope the
Congress and the new Administration will take action to meet each of
these challenges.
Education

The American people have always recognized that education is one of
the soundest investments they can make. The dividends are reflected
in every dimension of our national life-- from the strength of our
economy and national security to the vitality of our music, art, and
literature. Among the accomplishments that have given me the most
satisfaction over the last four years are the contributions that my
Administration has been able to make to the well-being of students
and educators throughout the country.

This Administration has collaborated successfully with the Congress
on landmark education legislation. Working with the Congressional
leadership, my Administration spotlighted the importance of education
by creating a new Department of Education. The Department has given
education a stronger voice at the Federal level, while at the same
time reserving the actual control and operation of education to
states, localities, and private institutions. The Department has
successfully combined nearly 150 Federal education programs into a
cohesive, streamlined organization that is more responsive to the
needs of educators and students. The Department has made strides to
cut red tape and paperwork and thereby to make the flow of Federal
dollars to school districts and institutions of higher education more
efficient. It is crucial that the Department be kept intact and
strengthened.

Our collaboration with the Congress has resulted in numerous other
important legislative accomplishments for education. A little over
two years ago, I signed into law on the same day two major bills--
one benefiting elementary and secondary education and the other,
postsecondary education. The Education Amendments of 1978 embodied
nearly all of my Administration's proposals for improvements in the
Elementary and Secondary Education Act, including important new
programs to improve students' achievement in the basic skills and to
aid school districts with exceptionally high concentrations of
children from low-income families. The Middle Income Student
Assistance Act, legislation jointly sponsored by this Administration
and the Congressional leadership, expanded eligibility for need-based
Basic Educational Opportunity Grants to approximately one-third of the
students enrolled in post-secondary education and made many more
students eligible for the first time for other types of grants,
work-study, and loans.

Just three and a half months ago, my Administration and the Congress
successfully concluded over two years of work on a major
reauthorization bill that further expands benefits to postsecondary
education. Reflected in the Education Amendments of 1980 are major
Administration recommendations for improvements in the Higher
Education Act-- including proposals for better loan access for
students; a new parent loan program; simplified application
procedures for student financial aid; a strengthened Federal
commitment to developing colleges, particularly the historically
Black institutions; a new authorization for equipment and facilities
modernization funding for the nation's major research universities;
and revitalized international education programs.

Supplementing these legislative accomplishments have been important
administrative actions aimed at reducing paperwork and simplifying
regulations associated with Federal education programs. We also
launched major initiatives to reduce the backlog of defaulted student
loans and otherwise to curb fraud, abuse, and waste in education
programs.

To insure that the education enterprise is ready to meet the
scientific and technological changes of the future, we undertook a
major study of the status of science and engineering education
throughout the nation. I hope that the findings from this report will
serve as a springboard for needed reforms at all levels of education.

I am proud that this Administration has been able to provide the
financial means to realize many of our legislative and administrative
goals. Compared to the previous administration's last budget, I have
requested the largest overall increase in Federal funding for
education in our nation's history. My budget requests have been
particularly sensitive to the needs of special populations like
minorities, women, the educationally and economically disadvantaged,
the handicapped, and students with limited English-speaking ability.
At the same time, I have requested significant increases for many
programs designed to enhance the quality of American education,
including programs relating to important areas as diverse as
international education, research libraries, museums, and teacher
centers.

Last year, I proposed to the Congress a major legislative initiative
that would direct $2 billion into education and job training programs
designed to alleviate youth unemployment through improved linkages
between the schools and the work place. This legislation generated
bipartisan support; but unfortunately, action on it was not completed
in the final, rushed days of the 96th Congress. I urge the new
Congress-- as it undertakes broad efforts to strengthen the economy
as well as more specific tasks like reauthorizing the Vocational
Education Act-- to make the needs of our nation's unemployed youth a
top priority for action. Only by combining a basic skills education
program together with work training and employment incentives can we
make substantial progress in eliminating one of the most severe
social problems in our nation-- youth unemployment, particularly
among minorities. I am proud of the progress already made through
passage of the Youth Employment and Demonstration Project Act of 1977
and the substantial increase in our investment in youth employment
programs. The new legislation would cap these efforts.
INCOME SECURITY
SOCIAL SECURITY

One of the highest priorities of my Administration has been to
continue the tradition of effectiveness and efficiency widely
associated with the social security program, and to assure present
and future beneficiaries that they will receive their benefits as
expected. The earned benefits that are paid monthly to retired and
disabled American workers and their families provide a significant
measure of economic protection to millions of people who might
otherwise face retirement or possible disability with fear. I have
enacted changes to improve the benefits of many social security
beneficiaries during my years as President.

The last four years have presented a special set of concerns over the
financial stability of the social security system. Shortly after
taking office I proposed and Congress enacted legislation to protect
the stability of the old age and survivors trust fund and prevent the
imminent exhaustion of the disability insurance trust fund, and to
correct a flaw in the benefit formula that was threatening the long
run health of the entire social security system. The actions taken by
the Congress at my request helped stabilize the system. That
legislation was later complemented by the Disability Insurance
Amendments of 1980 which further bolstered the disability insurance
program, and reduced certain inequities among beneficiaries.

My commitment to the essential retirement and disability protection
provided to 35 million people each month has been demonstrated by the
fact that without interruption those beneficiaries have continued to
receive their social security benefits, including annual cost of
living increases. Changing and unpredictable economic circumstances
require that we continue to monitor the financial stability of the
social security system. To correct anticipated short-term strains on
the system, I proposed last year that the three funds be allowed to
borrow from one another, and I urge the Congress again this year to
adopt such interfund borrowing. To further strengthen the social
security system and provide a greater degree of assurance to
beneficiaries, given projected future economic uncertainties,
additional action should be taken. Among the additional financing
options available are borrowing from the general fund, financing half
of the hospital insurance fund with general revenues, and increasing
the payroll tax rate. The latter option is particularly unpalatable
given the significant increase in the tax rate already mandated in
law.

This Administration continues to oppose cuts in basic social security
benefits and taxing social security benefits. The Administration
continues to support annual indexing of social security benefits.

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.
WELFARE REFORM

In 1979 I proposed a welfare reform package which offers solutions to
some of the most urgent problems in our welfare system. This proposal
is embodied in two bills, The Work and Training Opportunities Act and
The Social Welfare Reform Amendments Act. The House passed the second
of these two proposals. Within the framework of our present welfare
system, my reform proposals offer achievable means to increase
self-sufficiency through work rather than welfare, more adequate
assistance to people unable to work, the removal of inequities in
coverage under current programs, and fiscal relief needed by States
and localities.

Our current welfare system is long overdue for serious reform; the
system is wasteful and not fully effective. The legislation I have
proposed will help eliminate inequities by establishing a national
minimum benefit, and by directly relating benefit levels to the
poverty threshold. It will reduce program complexity, which leads to
inefficiency and waste, by simplifying and coordinating
administration among different programs.

I urge the Congress to take action in this area along the lines I
have recommended.
CHILD WELFARE

My Administration has worked closely with the Congress on legislation
which is designed to improve greatly the child welfare services and
foster care programs and to create a Federal system of adoption
assistance. These improvements will be achieved with the recent
enactment of H.R. 3434, the Adoption Assistance and Child Welfare Act
of 1980. The well-being of children in need of homes and their
permanent placement have been a primary concern of my Administration.
This legislation will ensure that children are not lost in the foster
care system, but instead will be returned to their families where
possible or placed in permanent adoptive homes.
LOW-INCOME ENERGY ASSISTANCE

In 1979 I proposed a program to provide an annual total of $1.6
billion to low-income households which are hardest hit by rising
energy bills. With the cooperation of Congress, we were able to move
quickly to provide assistance to eligible households in time to meet
their winter heating bills.

In response to the extreme heat conditions affecting many parts of
the country during 1980, I directed the Community Services
Administration to make available over $27 million to assist
low-income individuals, especially the elderly, facing life
threatening circumstances due to extreme heat.

Congress amended and reauthorized the low-income energy assistance
program for fiscal year 1981, and provided $1.85 billion to meet
anticipated increasing need. The need for a program to help
low-income households with rising energy expenses will not abate in
the near future. The low-income energy assistance program should be
reauthorized to meet those needs.
HOUSING

For the past 14 months, high interest rates have had a severe impact
on the nation's housing market. Yet the current pressures and
uncertainties should not obscure the achievements of the past four
years.

Working with the Congress, the regulatory agencies, and the financial
community, my Administration has brought about an expanded and
steadier flow of funds into home mortgages. Deregulation of the
interest rates payable by depository institutions, the evolution of
variable and renegotiated rate mortgages, development of high
yielding savings certificates, and expansion of the secondary
mortgage market have all increased housing's ability to attract
capital and have assured that mortgage money would not be cut off
when interest rates rose. These actions will diminish the cyclicality
of the housing industry. Further, we have secured legislation updating
the Federal Government's emergency authority to provide support for
the housing industry through the Brooke-Cranston program, and
creating a new Section 235 housing stimulus program. These tools will
enable the Federal Government to deal quickly and effectively with
serious distress in this critical industry.

We have also worked to expand homeownership opportunities for
Americans. By using innovative financing mechanisms, such as the
graduated payment mortgage, we have increased the access of middle
income families to housing credit. By revitalizing the Section 235
program, we have enabled nearly 100,000 moderate income households to
purchase new homes. By reducing paperwork and regulation in Federal
programs, and by working with State and local governments to ease the
regulatory burden, we have helped to hold down housing costs and
produce affordable housing.

As a result of these governmentwide efforts, 5 1/2 million more
American families bought homes in the past four years than in any
equivalent period in history. And more than 7 million homes have
begun construction during my Administration, 1 million more than in
the previous four years.

We have devoted particular effort to meeting the housing needs of low
and moderate income families. In the past four years, more than 1
million subsidized units have been made available for occupancy by
lower income Americans and more than 600,000 assisted units have gone
into construction. In addition, we have undertaken a series of
measures to revitalize and preserve the nation's 2 million units of
public and assisted housing.

For Fiscal Year 1982, I am proposing to continue our commitment to
lower income housing. I am requesting funds to support 260,000 units
of Section 8 and public housing, maintaining these programs at the
level provided by Congress in Fiscal 1981.

While we have made progress in the past four years, in the future
there are reasons for concern. Home price inflation and high interest
rates threaten to put homeownership out of reach for first-time
homebuyers. Lower income households, the elderly and those dependent
upon rental housing face rising rents, low levels of rental housing
construction by historic standards, and the threat of displacement
due to conversion to condominiums and other factors. Housing will
face strong competition for investment capital from the industrial
sector generally and the energy industries, in particular.

To address these issues, I appointed a Presidential Task Force and
Advisory Group last October. While this effort will not proceed due
to the election result, I hope the incoming Administration will
proceed with a similar venture.

The most important action government can take to meet America's
housing needs is to restore stability to the economy and bring down
the rate of inflation. Inflation has driven up home prices, operating
costs and interest rates. Market uncertainty about inflation has
contributed to the instability in interest rates, which has been an
added burden to homebuilders and homebuyers alike. By making a
long-term commitment to provide a framework for greater investment,
sustained economic growth, and price stability, my Administration has
begun the work of creating a healthy environment for housing.
TRANSPORTATION

With the passage of the Airline Deregulation Act of 1978, the Motor
Carrier Act of 1980, and the Harley O. Staggers Rail Act of 1980, my
Administration, working with the Congress, has initiated a new era of
reduced regulation of transportation industries. Deregulation will
lead to increased productivity and operating efficiencies in the
industries involved, and stimulate price and service competition, to
the benefit of consumers generally. I urge the new Administration to
continue our efforts on behalf of deregulation legislation for the
intercity passenger bus industry as well.

In the coming decade, the most significant challenge facing the
nation in transportation services will be to improve a deteriorating
physical infrastructure of roadways, railroads, waterways and mass
transit systems, in order to conserve costly energy supplies while
promoting effective transportation services.
HIGHWAYS

Our vast network of highways, which account for 90 percent of travel
and 80 percent by value of freight traffic goods movement, is
deteriorating. If current trends continue, a major proportion of the
Interstate pavement will have deteriorated by the end of the 1980's.

Arresting the deterioration of the nation's system of highways is a
high priority objective for the 1980's. We must reorient the Federal
mission from major new construction projects to the stewardship of
the existing Interstate Highway System. Interstate gaps should be
judged on the connections they make and on their compatibility with
community needs.

During this decade, highway investments will be needed to increase
productivity, particularly in the elimination of bottlenecks, provide
more efficient connections to ports and seek low-cost solutions to
traffic demand.

My Administration has therefore recommended redefining completion of
the Interstate system, consolidating over 27 categorical assistance
programs into nine, and initiating a major repair and rehabilitation
program for segments of the Interstate system. This effort should
help maintain the condition and performance of the Nation's highways,
particularly the Interstate and primary system; provide a realistic
means to complete the Interstate system by 1990; ensure better
program delivery through consolidation, and assist urban
revitalization. In addition, the Congress must address the urgent
funding problems of the highway trust fund, and the need to generate
greater revenues.
MASS TRANSIT

In the past decade the nation's public transit systems' ridership
increased at an annual average of 1.1% each year in the 1970's (6.9%
in 1979). Continued increases in the cost of fuel are expected to
make transit a growing part of the nation's transportation system.

As a result, my Administration projected a ten year, $43 billion
program to increase mass transit capacity by 50 percent, and promote
more energy efficient vehicle uses in the next decade. The first part
of this proposal was the five year, $24.7 billion Urban Mass
Transportation Administration reauthorization legislation I sent to
the Congress in March, 1980. I urge the 97th Congress to quickly
enact this or similar legislation in 1981.

My Administration was also the first to ha