Speech Transcript:

 Mr. Speaker, Mr. President, distinguished Members of the Congress,
honored guests, and fellow citizens:

This solemn occasion marks the 196th time that a President of the
United States has reported on the State of the Union since George
Washington first did so in 1790. That's a lot of reports, but there's
no shortage of new things to say about the State of the Union. The
very key to our success has been our ability, foremost among nations,
to preserve our lasting values by making change work for us rather
than against us. I would like to talk with you this evening about
what we can do together-- not as Republicans and Democrats, but as
Americans-- to make tomorrow's America happy and prosperous at home,
strong and respected abroad, and at peace in the world.

As we gather here tonight, the state of our Union is strong, but our
economy is troubled. For too many of our fellow citizens-- farmers,
steel and auto workers, lumbermen, black teenagers, working mothers--
this is a painful period. We must all do everything in our power to
bring their ordeal to an end. It has fallen to us, in our time, to
undo damage that was a long time in the making, and to begin the hard
but necessary task of building a better future for ourselves and our
children.

We have a long way to go, but thanks to the courage, patience, and
strength of our people, America is on the mend.

But let me give you just one important reason why I believe this-- it
involves many members of this body.

Just 10 days ago, after months of debate and deadlock, the bipartisan
Commission on Social Security accomplished the seemingly impossible.
Social security, as some of us had warned for so long, faced
disaster. I, myself, have been talking about this problem for almost
30 years. As 1983 began, the system stood on the brink of bankruptcy,
a double victim of our economic ills. First, a decade of rampant
inflation drained its reserves as we tried to protect beneficiaries
from the spiraling cost of living. Then the recession and the sudden
end of inflation withered the expanding wage base and increasing
revenues the system needs to support the 36 million Americans who
depend on it.

When the Speaker of the House, the Senate majority leader, and I
performed the bipartisan-- or formed the bipartisan Commission on
Social Security, pundits and experts predicted that party divisions
and conflicting interests would prevent the Commission from agreeing
on a plan to save social security. Well, sometimes, even here in
Washington, the cynics are wrong. Through compromise and cooperation,
the members of the Commission overcame their differences and achieved
a fair, workable plan. They proved that, when it comes to the
national welfare, Americans can still pull together for the common
good.

Tonight, I'm especially pleased to join with the Speaker and the
Senate majority leader in urging the Congress to enact this plan by
Easter.

There are elements in it, of course, that none of us prefers, but
taken together it performs a package that all of us can support. It
asks for some sacrifice by all-- the self-employed, beneficiaries,
workers, government employees, and the better-off among the retired--
but it imposes an undue burden on none. And, in supporting it, we keep
an important pledge to the American people: The integrity of the
social security system will be preserved, and no one's payments will
be reduced.

The Commission's plan will do the job; indeed, it must do the job. We
owe it to today's older Americans and today's younger workers. So,
before we go any further, I ask you to join with me in saluting the
members of the Commission who are here tonight and Senate Majority
Leader Howard Baker and Speaker Tip O'Neill for a job well done. I
hope and pray the bipartisan spirit that guided you in this endeavor
will inspire all of us as we face the challenges of the year ahead.

Nearly half a century ago, in this Chamber, another American
President, Franklin Delano Roosevelt, in his second State of the
Union message, urged America to look to the future, to meet the
challenge of change and the need for leadership that looks forward,
not backward.

"Throughout the world," he said, "change is the order of the day. In
every nation economic problems long in the making have brought crises
to [of] many kinds for which the masters of old practice and theory
were unprepared." He also reminded us that "the future lies with
those wise political leaders who realize that the great public is
interested more in Government than in politics."

So, let us, in these next 2 years-- men and women of both parties,
every political shade-- concentrate on the long-range, bipartisan
responsibilities of government, not the short-range or short-term
temptations of partisan politics.

The problems we inherited were far worse than most inside and out of
government had expected; the recession was deeper than most inside
and out of government had predicted. Curing those problems has taken
more time and a higher toll than any of us wanted. Unemployment is
far too high. Projected Federal spending-- if government refuses to
tighten its own belt-- will also be far too high and could weaken and
shorten the economic recovery now underway.

This recovery will bring with it a revival of economic confidence and
spending for consumer items and capital goods-- the stimulus we need
to restart our stalled economic engines. The American people have
already stepped up their rate of saving, assuring that the funds
needed to modernize our factories and improve our technology will
once again flow to business and industry.

The inflationary expectations that led to a 21 1/2-percent interest
prime rate and soaring mortgage rates 2 years ago are now reduced by
almost half. Leaders have started to realize that double-digit
inflation is no longer a way of life.

I misspoke there. I should have said "lenders."

So, interest rates have tumbled, paving the way for recovery in vital
industries like housing and autos.

The early evidence of that recovery has started coming in. Housing
starts for the fourth quarter of 1982 were up 45 percent from a year
ago, and housing permits, a sure indicator of future growth, were up
a whopping 60 percent.

We're witnessing an upsurge of productivity and impressive evidence
that American industry will once again become competitive in markets
at home and abroad, ensuring more jobs and better incomes for the
Nation's work force. But our confidence must also be tempered by
realism and patience. Quick fixes and artificial stimulants
repeatedly applied over decades are what brought us the inflationary
disorders that we've now paid such a heavy price to cure.

The permanent recovery in employment, production, and investment we
seek won't come in a sharp, short spurt. It'll build carefully and
steadily in the months and years ahead. In the meantime, the
challenge of government is to identify the things that we can do now
to ease the massive economic transition for the American people.

The Federal budget is both a symptom and a cause of our economic
problems. Unless we reduce the dangerous growth rate in government
spending, we could face the prospect of sluggish economic growth into
the indefinite future. Failure to cope with this problem now could
mean as much as a trillion dollars more in national debt in the next
4 years alone. That would average $4,300 in additional debt for every
man, woman, child, and baby in our nation.

To assure a sustained recovery, we must continue getting runaway
spending under control to bring those deficits down. If we don't, the
recovery will be too short, unemployment will remain too high, and we
will leave an unconscionable burden of national debt for our
children. That we must not do.

Let's be clear about where the deficit problem comes from. Contrary
to the drumbeat we've been hearing for the last few months, the
deficits we face are not rooted in defense spending. Taken as a
percentage of the gross national product, our defense spending
happens to be only about four-fifths of what it was in 1970. Nor is
the deficit, as some would have it, rooted in tax cuts. Even with our
tax cuts, taxes as a fraction of gross national product remain about
the same as they were in 1970. The fact is, our deficits come from
the uncontrolled growth of the budget for domestic spending.

During the 1970's the share of our national income devoted to this
domestic spending increased by more than 60 percent, from 10 cents
out of every dollar produced by the American people to 16 cents. In
spite of all our economies and efficiencies, and without adding any
new programs, basic, necessary domestic spending provided for in this
year's budget will grow to almost a trillion dollars over the next 5
years.

The deficit problem is a clear and present danger to the basic health
of our Republic. We need a plan to overcome this danger-- a plan based
on these principles. It must be bipartisan. Conquering the deficits
and putting the Government's house in order will require the best
effort of all of us. It must be fair. Just as all will share in the
benefits that will come from recovery, all would share fairly in the
burden of transition. It must be prudent. The strength of our
national defense must be restored so that we can pursue prosperity
and peace and freedom while maintaining our commitment to the truly
needy. And finally, it must be realistic. We can't rely on hope
alone.

With these guiding principles in mind, let me outline a four-part
plan to increase economic growth and reduce deficits.

First, in my budget message, I will recommend a Federal spending
freeze. I know this is strong medicine, but so far, we have only cut
the rate of increase in Federal spending. The Government has
continued to spend more money each year, though not as much more as
it did in the past. Taken as a whole, the budget I'm proposing for
the fiscal year will increase no more than the rate of inflation. In
other words, the Federal Government will hold the line on real
spending. Now, that's far less than many American families have had
to do in these difficult times.

I will request that the proposed 6-month freeze in cost-of-living
adjustments recommended by the bipartisan Social Security Commission
be applied to other government-related retirement programs. I will,
also, propose a 1-year freeze on a broad range of domestic spending
programs, and for Federal civilian and military pay and pension
programs. And let me say right here, I'm sorry, with regard to the
military, in asking that of them, because for so many years they have
been so far behind and so low in reward for what the men and women in
uniform are doing. But I'm sure they will understand that this must
be across the board and fair.

Second, I will ask the Congress to adopt specific measures to control
the growth of the so-called uncontrollable spending programs. These
are the automatic spending programs, such as food stamps, that cannot
be simply frozen and that have grown by over 400 percent since 1970.
They are the largest single cause of the built-in or structural
deficit problem. Our standard here will be fairness, ensuring that
the taxpayers' hard-earned dollars go only to the truly needy; that
none of them are turned away, but that fraud and waste are stamped
out. And I'm sorry to say, there's a lot of it out there. In the food
stamp program alone, last year, we identified almost [$]1.1 billion in
overpayments. The taxpayers aren't the only victims of this kind of
abuse. The truly needy suffer as funds intended for them are taken
not by the needy, but by the greedy. For everyone's sake, we must put
an end to such waste and corruption.

Third, I will adjust our program to restore America's defenses by
proposing $55 billion in defense savings over the next 5 years. These
are savings recommended to me by the Secretary of Defense, who has
assured me they can be safely achieved and will not diminish our
ability to negotiate arms reductions or endanger America's security.
We will not gamble with our national survival.

And fourth, because we must ensure reduction and eventual elimination
of deficits over the next several years, I will propose a standby tax,
limited to no more than 1 percent of the gross national product, to
start in fiscal 1986. It would last no more than 3 years, and it
would start only if the Congress has first approved our spending
freeze and budget control program. And there are several other
conditions also that must be met, all of them in order for this
program to be triggered.

Now, you could say that this is an insurance policy for the future, a
remedy that will be at hand if needed but only resorted to if
absolutely necessary. In the meantime, we'll continue to study ways
to simplify the tax code and make it more fair for all Americans.
This is a goal that every American who's ever struggled with a tax
form can understand.

At the same time, however, I will oppose any efforts to undo the
basic tax reforms that we've already enacted, including the
10-percent tax break coming to taxpayers this July and the tax
indexing which will protect all Americans from inflationary bracket
creep in the years ahead.

Now, I realize that this four-part plan is easier to describe than it
will be to enact. But the looming deficits that hang over us and over
America's future must be reduced. The path I've outlined is fair,
balanced, and realistic. If enacted, it will ensure a steady decline
in deficits, aiming toward a balanced budget by the end of the
decade. It's the only path that will lead to a strong, sustained
recovery. Let us follow that path together.

No domestic challenge is more crucial than providing stable,
permanent jobs for all Americans who want to work. The recovery
program will provide jobs for most, but others will need special help
and training for new skills. Shortly, I will submit to the Congress
the Employment Act of 1983, designed to get at the special problems
of the long-term unemployed, as well as young people trying to enter
the job market. I'll propose extending unemployment benefits,
including special incentives to employers who hire the long-term
nemployed, providing programs for displaced workers, and helping
federally funded and State-administered unemployment insurance
programs provide workers with training and relocation assistance.
Finally, our proposal will include new incentives for summer youth
employment to help young people get a start in the job market.

We must offer both short-term help and long-term hope for our
unemployed. I hope we can work together on this. I hope we can work
together as we did last year in enacting the landmark Job Training
Partnership Act. Regulatory reform legislation, a responsible clean
air act, and passage of enterprise zone legislation will also create
new incentives for jobs and opportunity.

One out of every five jobs in our country depends on trade. So, I
will propose a broader strategy in the field of international trade--
one that increases the openness of our trading system and is fairer to
America's farmers and workers in the world marketplace. We must have
adequate export financing to sell American products overseas. I will
ask for new negotiating authority to remove barriers and to get more
of our products into foreign markets. We must strengthen the
organization of our trade agencies and make changes in our domestic
laws and international trade policy to promote free trade and the
increased flow of American goods, services, and investments.

Our trade position can also be improved by making our port system
more efficient. Better, more active harbors translate into stable
jobs in our coalfields, railroads, trucking industry, and ports.
After 2 years of debate,it's time for us to get together and enact a
port modernization bill.

Education, training, and retraining are fundamental to our success as
are research and development and productivity. Labor, management, and
government at all levels can and must participate in improving these
tools of growth. Tax policy, regulatory practices, and government
programs all need constant reevaluation in terms of our
competitiveness. Every American has a role and a stake in
international trade.

We Americans are still the technological leaders in most fields. We
must keep that edge, and to do so we need to begin renewing the
basics-- starting with our educational system. While we grew
complacent, others have acted. Japan, with a population only about
half the size of ours, graduates from its universities more engineers
than we do. If a child doesn't receive adequate math and science
teaching by the age of 16, he or she has lost the chance to be a
scientist or an engineer. We must join together-- parents, teachers,
grassroots groups, organized labor, and the business community-- to
revitalize American education by setting a standard of excellence.

In 1983 we seek four major education goals: a quality education
initiative to encourage a substantial upgrading of math and science
instruction through block grants to the States; establishment of
education savings accounts that will give middle- and lower-income
families an incentive to save for their children's college education
and, at the same time, encourage a real increase in savings for
economic growth; passage of tuition tax credits for parents who want
to send their children to private or religiously affiliated schools;
a constitutional amendment to permit voluntary school prayer. God
should never have been expelled from America's classrooms in the
first place.

Our commitment to fairness means that we must assure legal and
economic equity for women, and eliminate, once and for all, all
traces of unjust discrimination against women from the United States
Code. We will not tolerate wage discrimination based on sex, and we
intend to strengthen enforcement of child support laws to ensure that
single parents, most of whom are women, do not suffer unfair financial
hardship. We will also take action to remedy inequities in pensions.
These initiatives will be joined by others to continue our efforts to
promote equity for women.

Also in the area of fairness and equity, we will ask for extension of
the Civil Rights Commission, which is due to expire this year. The
Commission is an important part of the ongoing struggle for justice
in America, and we strongly support its reauthorization. Effective
enforcement of our nation's fair housing laws is also essential to
ensuring equal opportunity. In the year ahead, we'll work to
strengthen enforcement of fair housing laws for all Americans.

The time has also come for major reform of our criminal justice
statutes and acceleration of the drive against organized crime and
drug trafficking. It's high time that we make our cities safe again.
This administration hereby declares an all-out war on big-time
organized crime and the drug racketeers who are poisoning our young
people. We will also implement recommendations of our Task Force on
Victims of Crime, which will report to me this week.

American agriculture, the envy of the world, has become the victim of
its own successes. With one farmer now producing enough food to feed
himself and 77 other people, America is confronted with record
surplus crops and commodity prices below the cost of production. We
must strive, through innovations like the payment-in-kind crop swap
approach and an aggressive export policy, to restore health and
vitality to rural America. Meanwhile, I have instructed the
Department of Agriculture to work individually with farmers with debt
problems to help them through these tough times.

Over the past year, our Task Force on Private Sector Initiatives has
successfully forged a working partnership involving leaders of
business, labor, education, and government to address the training
needs of American workers. Thanks to the Task Force, private sector
initiatives are now underway in all 50 States of the Union, and
thousands of working people have been helped in making the shift from
dead-end jobs and low-demand skills to the growth areas of high
technology and the service economy. Additionally, a major effort will
be focused on encouraging the expansion of private community child
care. The new advisory council on private sector initiatives will
carry on and extend this vital work of encouraging private initiative
in 1983.

In the coming year, we will also act to improve the quality of life
for Americans by curbing the skyrocketing cost of health care that is
becoming an unbearable financial burden for so many. And we will
submit legislation to provide catastrophic illness insurance coverage
for older Americans.

I will also shortly submit a comprehensive federalism proposal that
will continue our efforts to restore to States and local governments
theirroles as dynamic laboratories of change in a creative society.

During the next several weeks, I will send to the Congress a series
of detailed proposals on these and other topics and look forward to
working with you on the development of these initiatives.

So far, now, I've concentrated mainly on the problems posed by the
future. But in almost every home and workplace in America, we're
already witnessing reason for great hope-- the first flowering of the
manmade miracles of high technology, a field pioneered and still led
by our country.

To many of us now, computers, silicon chips, data processing,
cybernetics, and all the other innovations of the dawning high
technology age are as mystifying as the workings of the combustion
engine must have been when that first Model T rattled down Main
Street, U.S.A. But as surely as America's pioneer spirit made us the
industrial giant of the 20th century, the same pioneer spirit today
is opening up on another vast front of opportunity, the frontier of
high technology.

In conquering the frontier we cannot write off our traditional
industries, but we must develop the skills and industries that will
make us a pioneer of tomorrow. This administration is committed to
keeping America the technological leader of the world now and into
the 21st century.

But let us turn briefly to the international arena. America's
leadership in the world came to us because of our own strength and
because of the values which guide us as a society: free elections, a
free press, freedom of religious choice, free trade unions, and above
all, freedom for the individual and rejection of the arbitrary power
of the state. These values are the bedrock of our strength. They
unite us in a stewardship of peace and freedom with our allies and
friends in NATO , in Asia, in Latin America, and elsewhere. They are
also the values which in the recent past some among us had begun to
doubt and view with a cynical eye.

Fortunately, we and our allies have rediscovered the strength of our
common democratic values, and we're applying them as a cornerstone of
a comprehensive strategy for peace with freedom. In London last year,
I announced the commitment of the United States to developing the
infrastructure of democracy throughout the world. We intend to pursue
this democratic initiative vigorously. The future belongs not to
governments and ideologies which oppress their peoples, but to
democratic systems of self-government which encourage individual
initiative and guarantee personal freedom.

But our strategy for peace with freedom must also be based on
strength- - economic strength and military strength. A strong
American economy is essential to the well-being and security of our
friends and allies. The restoration of a strong, healthy American
economy has been and remains one of the central pillars of our
foreign policy. The progress I've been able to report to you tonight
will, I know, be as warmly welcomed by the rest of the world as it is
by the American people.

We must also recognize that our own economic well-being is
inextricably linked to the world economy. We export over 20 percent
of our industrial production, and 40 percent of our farmland produces
for export. We will continue to work closely with the industrialized
democracies of Europe and Japan and with the International Monetary
Fund to ensure it has adequate resources to help bring the world
economy back to strong, noninflationary growth.

As the leader of the West and as a country that has become great and
rich because of economic freedom, America must be an unrelenting
advocate of free trade. As some nations are tempted to turn to
protectionism, our strategy cannot be to follow them, but to lead the
way toward freer trade. To this end, in May of this year America will
host an economic summit meeting in Williamsburg, Virginia.

As we begin our third year, we have put in place a defense program
that redeems the neglect of the past decade. We have developed a
realistic military strategy to deter threats to peace and to protect
freedom if deterrence fails. Our Armed Forces are finally properly
paid; after years of neglect are well trained and becoming better
equipped and supplied. And the American uniform is once again worn
with pride. Most of the major systems needed for modernizing our
defenses are already underway, and we will be addressing one key
system, the MX missile, in consultation with the Congress in a few
months.

America's foreign policy is once again based on bipartisanship, on
realism, strength, full partnership, in consultation with our allies,
and constructive negotiation with potential adversaries. From the
Middle East to southern Africa to Geneva, American diplomats are
taking the initiative to make peace and lower arms levels. We should
be proud of our role as peacemakers.

In the Middle East last year, the United States played the major role
in ending the tragic fighting in Lebanon and negotiated the withdrawal
of the PLO from Beirut.

Last September, I outlined principles to carry on the peace process
begun so promisingly at Camp David. All the people of the Middle East
should know that in the year ahead we will not flag in our efforts to
build on that foundation to bring them the blessings of peace.

In Central America and the Caribbean Basin, we are likewise engaged
in a partnership for peace, prosperity, and democracy. Final passage
of the remaining portions of our Caribbean Basin Initiative, which
passed the House last year, is one of this administration's top
legislative priorities for 1983.

The security and economic assistance policies of this administration
in Latin America and elsewhere are based on realism and represent a
critical investment in the future of the human race. This undertaking
is a joint responsibility of the executive and legislative branches,
and I'm counting on the cooperation and statesmanship of the Congress
to help us meet this essential foreign policy goal.

At the heart of our strategy for peace is our relationship with the
Soviet Union. The past year saw a change in Soviet leadership. We're
prepared for a positive change in Soviet-American relations. But the
Soviet Union must show by deeds as well as words a sincere commitment
to respect the rights and sovereignty of the family of nations.
Responsible members of the world community do not threaten or invade
their neighbors. And they restrain their allies from aggression.

For our part, we're vigorously pursuing arms reduction negotiations
with the Soviet Union. Supported by our allies, we've put forward
draft agreements proposing significant weapon reductions to equal and
verifiable lower levels. We insist on an equal balance of forces. And
given the overwhelming evidence of Soviet violations of international
treaties concerning chemical and biological weapons, we also insist
that any agreement we sign can and will be verifiable.

In the case of intermediate-range nuclear forces, we have proposed
the complete elimination of the entire class of land-based missiles.
We're also prepared to carefully explore serious Soviet proposals. At
the same time, let me emphasize that allied steadfastness remains a
key to achieving arms reductions.

With firmness and dedication, we'll continue to negotiate. Deep down,
the Soviets must know it's in their interest as well as ours to
prevent a wasteful arms race. And once they recognize our unshakable
resolve to maintain adequate deterrence, they will have every reason
to join us in the search for greater security and major arms
reductions. When that moment comes-- and I'm confident that it will--
we will have taken an important step toward a more peaceful future for
all the world's people.

A very wise man, Bernard Baruch, once said that America has never
forgotten the nobler things that brought her into being and that
light her path. Our country is a special place, because we Americans
have always been sustained, through good times and bad, by a noble
vision-- a vision not only of what the world around us is today but
what we as a free people can make it be tomorrow.

We're realists; we solve our problems instead of ignoring them, no
matter how loud the chorus of despair around us. But we're also
idealists, for it was an ideal that brought our ancestors to these
shores from every corner of the world.

Right now we need both realism and idealism. Millions of our
neighbors are without work. It is up to us to see they aren't without
hope. This is a task for all of us. And may I say, Americans have
rallied to this cause, proving once again that we are the most
generous people on Earth.

We who are in government must take the lead in restoring the economy.
And here all that time, I thought you were reading the paper.

The single thing-- the single thing that can start the wheels of
industry turning again is further reduction of interest rates. Just
another 1 or 2 points can mean tens of thousands of jobs.

Right now, with inflation as low as it is, 3.9 percent, there is room
for interest rates to come down. Only fear prevents their reduction. A
lender, as we know, must charge an interest rate that recovers the
depreciated value of the dollars loaned. And that depreciation is, of
course, the amount of inflation. Today, interest rates are based on
fear-- fear that government will resort to measures, as it has in the
past, that will send inflation zooming again.

We who serve here in this Capital must erase that fear by making it
absolutely clear that we will not stop fighting inflation; that,
together, we will do only those things that will lead to lasting
economic growth.

Yes, the problems confronting us are large and forbidding. And,
certainly, no one can or should minimize the plight of millions of
our friends and neighbors who are living in the bleak emptiness of
unemployment. But we must and can give them good reason to be
hopeful.

Back over the years, citizens like ourselves have gathered within
these walls when our nation was threatened; sometimes when its very
existence was at stake. Always with courage and common sense, they
met the crises of their time and lived to see a stronger, better, and
more prosperous country. The present situation is no worse and, in
fact, is not as bad as some of those they faced. Time and again, they
proved that there is nothing we Americans cannot achieve as free men
and women.

Yes, we still have problems-- plenty of them. But it's just plain
wrong-- unjust to our country and unjust to our people-- to let those
problems stand in the way of the most important truth of all: America
is on the mend.

We owe it to the unfortunate to be aware of their plight and to help
them in every way we can. No one can quarrel with that. We must and
do have compassion for all the victims of this economic crisis. But
the big story about America today is the way that millions of
confident, caring people-- those extraordinary "ordinary" Americans
who never make the headlines and will never be interviewed-- are
laying the foundation, not just for recovery from our present
problems but for a better tomorrow for all our people.

From coast to coast, on the job and in classrooms and laboratories,
at new construction sites and in churches and community groups,
neighbors are helping neighbors. And they've already begun the
building, the research, the work, and the giving that will make our
country great again.

I believe this, because I believe in them-- in the strength of their
hearts and minds, in the commitment that each one of them brings to
their daily lives, be they high or humble. The challenge for us in
government is to be worthy of them-- to make government a help, not a
hindrance to our people in the challenging but promising days ahead.

If we do that, if we care what our children and our children's
children will say of us, if we want them one day to be thankful for
what we did here in these temples of freedom, we will work together
to make America better for our having been here-- not just in this
year or this decade but in the next century and beyond.

Thank you, and God bless you.