Speech Transcript:

 I come before you to report on the state of our Union, and I'm
pleased to report that after 4 years of united effort, the American
people have brought forth a nation renewed, stronger, freer, and more
secure than before.

Four years ago we began to change, forever I hope, our assumptions
about government and its place in our lives. Out of that change has
come great and robust growth--in our confidence, our economy, and our
role in the world.

Tonight America is stronger because of the values that we hold dear.
We believe faith and freedom must be our guiding stars, for they show
us truth, they make us brave, give us hope, and leave us wiser than we
were. Our progress began not in Washington, D.C., but in the hearts of
our families, communities, workplaces, and voluntary groups which,
together, are unleashing the invincible spirit of one great nation
under God.

Four years ago we said we would invigorate our economy by giving
people greater freedom and incentives to take risks and letting them
keep more of what they earned. We did what we promised, and a great
industrial giant is reborn.

Tonight we can take pride in 25 straight months of economic growth,
the strongest in 34 years; a 3-year inflation average of 3.9 percent,
the lowest in 17 years; and 7.3 million new jobs in 2 years, with more
of our citizens working than ever before.

New freedom in our lives has planted the rich seeds for future
success:

    * For an America of wisdom that honors the family, knowing that
if [as] the family goes, so goes our civilization;
    * For an America of vision that sees tomorrow's dreams in the
learning and hard work we do today;
    * For an America of courage whose service men and women, even as
we meet, proudly stand watch on the frontiers of freedom;
    * For an America of compassion that opens its heart to those who
cry out for help.

We have begun well. But it's only a beginning. We're not here to
congratulate ourselves on what we have done but to challenge
ourselves to finish what has not yet been done.

We're here to speak for millions in our inner cities who long for
real jobs, safe neighborhoods, and schools that truly teach. We're
here to speak for the American farmer, the entrepreneur, and every
worker in industries fighting to modernize and compete. And, yes,
we're here to stand, and proudly so, for all who struggle to break
free from totalitarianism, for all who know in their hearts that
freedom is the one true path to peace and human happiness.

Proverbs tell us, without a vision the people perish. When asked what
great principle holds our Union together, Abraham Lincoln said,
"Something in [the] Declaration giving liberty, not alone to the
people of this country, but hope to the world for all future time."

We honor the giants of our history not by going back but forward to
the dreams their vision foresaw. My fellow citizens, this nation is
poised for greatness. The time has come to proceed toward a great new
challenge--a second American Revolution of hope and opportunity; a
revolution carrying us to new heights of progress by pushing back
frontiers of knowledge and space; a revolution of spirit that taps
the soul of America, enabling us to summon greater strength than
we've ever known; and a revolution that carries beyond our shores the
golden promise of human freedom in a world of peace.

Let us begin by challenging our conventional wisdom. There are no
constraints on the human mind, no walls around the human spirit, no
barriers to our progress except those we ourselves erect. Already,
pushing down tax rates has freed our economy to vault forward to
record growth.

In Europe, they're calling it "the American Miracle." Day by day,
we're shattering accepted notions of what is possible. When I was
growing up, we failed to see how a new thing called radio would
transform our marketplace. Well, today, many have not yet seen how
advances in technology are transforming our lives.

In the late 1950's workers at the AT&T semiconductor plant in
Pennsylvania produced five transistors a day for $7.50 apiece. They
now produce over a million for less than a penny apiece.

New laser techniques could revolutionize heart bypass surgery, cut
diagnosis time for viruses linked to cancer from weeks to minutes,
reduce hospital costs dramatically, and hold out new promise for
saving human lives.

Our automobile industry has overhauled assembly lines, increased
worker productivity, and is competitive once again.

We stand on the threshold of a great ability to produce more, do
more, be more. Our economy is not getting older and weaker; it's
getting younger and stronger. It doesn't need rest and supervision;
it needs new challenge, greater freedom. And that word "freedom" is
the key to the second American Revolution that we need to bring
about.

Let us move together with an historic reform of tax simplification
for fairness and growth. Last year I asked Treasury Secretary--then--
Regan to develop a plan to simplify the tax code, so all taxpayers
would be treated more fairly and personal tax rates could come
further down.

We have cut tax rates by almost 25 percent, yet the tax system
remains unfair and limits our potential for growth. Exclusions and
exemptions cause similar incomes to be taxed at different levels.
Low-income families face steep tax barriers that make hard lives even
harder. The Treasury Department has produced an excellent reform plan,
whose principles will guide the final proposal that we will ask you to
enact.

One thing that tax reform will not be is a tax increase in disguise.
We will not jeopardize the mortgage interest deduction that families
need. We will reduce personal tax rates as low as possible by
removing many tax preferences. We will propose a top rate of no more
than 35 percent, and possibly lower. And we will propose reducing
corporate rates, while maintaining incentives for capital formation.

To encourage opportunity and jobs rather than dependency and welfare,
we will propose that individuals living at or near the poverty line be
totally exempt from Federal income tax. To restore fairness to
families, we will propose increasing significantly the personal
exemption.

And tonight, I am instructing Treasury Secretary James Baker-- I have
to get used to saying that--to begin working with congressional
authors and committees for bipartisan legislation conforming to these
principles. We will call upon the American people for support and upon
every man and woman in this Chamber. Together, we can pass, this year,
a tax bill for fairness, simplicity, and growth, making this economy
the engine of our dreams and America the investment capital of the
world. So let us begin.

Tax simplification will be a giant step toward unleashing the
tremendous pent-up power of our economy. But a second American
Revolution must carry the promise of opportunity for all. It is time
to liberate the spirit of enterprise in the most distressed areas of
our country.

This government will meet its responsibility to help those in need.
But policies that increase dependency, break up families, and destroy
self-respect are not progressive; they're reactionary. Despite our
strides in civil rights, blacks, Hispanics, and all minorities will
not have full and equal power until they have full economic power.

We have repeatedly sought passage of enterprise zones to help those
in the abandoned corners of our land find jobs, learn skills, and
build better lives. This legislation is supported by a majority of
you.

Mr. Speaker, I know we agree that there must be no forgotten
Americans. Let us place new dreams in a million hearts and create a
new generation of entrepreneurs by passing enterprise zones this
year. And, Tip, you could make that a birthday present.

Nor must we lose the chance to pass our youth employment opportunity
wage proposal. We can help teenagers, who have the highest
unemployment rate, find summer jobs, so they can know the pride of
work and have confidence in their futures.

We'll continue to support the Job Training Partnership Act, which has
a nearly two-thirds job placement rate. Credits in education and
health care vouchers will help working families shop for services
that they need.

Our administration is already encouraging certain low-income public
housing residents to own and manage their own dwellings. It's time
that all public housing residents have that opportunity of
ownership.

The Federal Government can help create a new atmosphere of freedom.
But States and localities, many of which enjoy surpluses from the
recovery, must not permit their tax and regulatory policies to stand
as barriers to growth.

Let us resolve that we will stop spreading dependency and start
spreading opportunity; that we will stop spreading bondage and start
spreading freedom.

There are some who say that growth initiatives must await final
action on deficit reductions. Well, the best way to reduce deficits
is through economic growth. More businesses will be started, more
investments made, more jobs created, and more people will be on
payrolls paying taxes. The best way to reduce government spending is
to reduce the need for spending by increasing prosperity. Each added
percentage point per year of real GNP growth will lead to cumulative
reduction in deficits of nearly $200 billion over 5 years.

To move steadily toward a balanced budget, we must also lighten
government's claim on our total economy. We will not do this by
raising taxes. We must make sure that our economy grows faster than
the growth in spending by the Federal Government. In our fiscal year
1986 budget, overall government program spending will be frozen at
the current level. It must not be one dime higher than fiscal year
1985, and three points are key.

First, the social safety net for the elderly, the needy, the
disabled, and unemployed will be left intact. Growth of our major
health care programs, Medicare and Medicaid, will be slowed, but
protections for the elderly and needy will be preserved.

Second, we must not relax our efforts to restore military strength
just as we near our goal of a fully equipped, trained, and ready
professional corps. National security is government's first
responsibility; so in past years defense spending took about half the
Federal budget. Today it takes less than a third. We've already
reduced our planned defense expenditures by nearly a hundred billion
dollars over the past 4 years and reduced projected spending again
this year.

You know, we only have a military-industrial complex until a time of
danger, and then it becomes the arsenal of democracy. Spending for
defense is investing in things that are priceless--peace and
freedom.

Third, we must reduce or eliminate costly government subsidies. For
example, deregulation of the airline industry has led to cheaper
airfares, but on Amtrak taxpayers pay about $35 per passenger every
time an Amtrak train leaves the station. It's time we ended this huge
Federal subsidy.

Our farm program costs have quadrupled in recent years. Yet I know
from visiting farmers, many in great financial distress, that we need
an orderly transition to a market-oriented farm economy. We can help
farmers best not by expanding Federal payments but by making
fundamental reforms, keeping interest rates heading down, and
knocking down foreign trade barriers to American farm exports.

We're moving ahead with Grace commission reforms to eliminae and iA
We'remprove government's management practices. In the long run, we
must protect the taxpayers from government. And I ask again that you
pass, as 32 States have now called for, an amendment mandating the
Federal Government spend no more than it takes in. And I ask for the
authority, used responsibly by 43 Governors, to veto individual items
in appropriation bills. Senator Mattingly has introduced a bill
permitting a 2-year trial run of the line-item veto. I hope you'll
pass and send that legislation to my desk.

Nearly 50 years of government living beyond its means has brought us
to a time of reckoning. Ours is but a moment in history. But one
moment of courage, idealism, and bipartisan unity can change American
history forever.

Sound monetary policy is key to long-running economic strength and
stability. We will continue to cooperate with the Federal Reserve
Board, seeking a steady policy that ensures price stability without
keeping interest rates artificially high or needlessly holding down
growth.

Reducing unneeded redtape and regulations, and deregulating the
energy, transportation, and financial industries have unleashed new
competition, giving consumers more choices, better services, and
lower prices. In just one set of grant programs we have reduced 905
pages of regulations to 31. We seek to fully deregulate natural gas
to bring on new supplies and bring us closer to energy independence.
Consistent with safety standards, we will continue removing
restraints on the bus and railroad industries, we will soon end up
legislation--or send up legislation, I should say--to return Conrail
to the private sector where it belongs, and we will support further
deregulation of the trucking industry.

Every dollar the Federal Government does not take from us, every
decision it does not make for us will make our economy stronger, our
lives more abundant, our future more free.

Our second American Revolution will push on to new possibilities not
only on Earth but in the next frontier of space. Despite budget
restraints, we will seek record funding for research and
development.

We've seen the success of the space shuttle. Now we're going to
develop a permanently manned space station and new opportunities for
free enterprise, because in the next decade Americans and our friends
around the world will be living and working together in space.

In the zero gravity of space, we could manufacture in 30 days
lifesaving medicines it would take 30 years to make on Earth. We can
make crystals of exceptional purity to produce super computers,
creating jobs, technologies, and medical breakthroughs beyond
anything we ever dreamed possible.

As we do all this, we'll continue to protect our natural resources.
We will seek reauthorization and expanded funding for the Superfund
program to continue cleaning up hazardous waste sites which threaten
human health and the environment.

Now, there's another great heritage to speak of this evening. Of all
the changes that have swept America the past 4 years, none brings
greater promise than our rediscovery of the values of faith, freedom,
family, work, and neighborhood.

We see signs of renewal in increased attendance in places of worship;
renewed optimism and faith in our future; love of country rediscovered
by our young, who are leading the way. We've rediscovered that work is
good in and of itself, that it ennobles us to create and contribute no
matter how seemingly humble our jobs. We've seen a powerful new
current from an old and honorable tradition--American generosity.

From thousands answering Peace Corps appeals to help boost food
production in Africa, to millions volunteering time, corporations
adopting schools, and communities pulling together to help the
neediest among us at home, we have refound our values. Private sector
initiatives are crucial to our future.

I thank the Congress for passing equal access legislation giving
religious groups the same right to use classrooms after school that
other groups enjoy. But no citizen need tremble, nor the world
shudder, if a child stands in a classroom and breathes a prayer. We
ask you again, give children back a right they had for a century and
a half or more in this country.

The question of abortion grips our nation. Abortion is either the
taking of a human life or it isn't. And if it is--and medical
technology is increasingly showing it is--it must be stopped. It is a
terrible irony that while some turn to abortion, so many others who
cannot become parents cry out for children to adopt. We have room for
these children. We can fill the cradles of those who want a child to
love. And tonight I ask you in the Congress to move this year on
legislation to protect the unborn.

In the area of education, we're returning to excellence, and again,
the heroes are our people, not government. We're stressing basics of
discipline, rigorous testing, and homework, while helping children
become computer-smart as well. For 20 years Scholastic Aptitude Test
scores of our high school students went down, but now they have gone
up 2 of the last 3 years. We must go forward in our commitment to the
new basics, giving parents greater authority and making sure good
teachers are rewarded for hard work and achievement through merit
pay.

Of all the changes in the past 20 years, none has more threatened our
sense of national well-being than the explosion of violent crime. One
does not have to be attacked to be a victim. The woman who must run
to her car after shopping at night is a victim. The couple draping
their door with locks and chains are victims; as is the tired, decent
cleaning woman who can't ride a subway home without being afraid.

We do not seek to violate the rights of defendants. But shouldn't we
feel more compassion for the victims of crime than for those who
commit crime? For the first time in 20 years, the crime index has
fallen 2 years in a row. We've convicted over 7,400 drug offenders
and put them, as well as leaders of organized crime, behind bars in
record numbers.

But we must do more. I urge the House to follow the Senate and enact
proposals permitting use of all reliable evidence that police
officers acquire in good faith. These proposals would also reform the
habeus corpus laws and allow, in keeping with the will of the
overwhelming majority of Americans, the use of the death penalty
where necessary.

There can be no economic revival in ghettos when the most violent
among us are allowed to roam free. It's time we restored domestic
tranquility. And we mean to do just that.

Just as we're positioned as never before to secure justice in our
economy, we're poised as never before to create a safer, freer, more
peaceful world. Our alliances are stronger than ever. Our economy is
stronger than ever. We have resumed our historic role as a leader of
the free world. And all of these together are a great force for
peace.

Since 1981 we've been committed to seeking fair and verifiable arms
agreements that would lower the risk of war and reduce the size of
nuclear arsenals. Now our determination to maintain a strong defense
has influenced the Soviet Union to return to the bargaining table.
Our negotiators must be able to go to that table with the united
support of the American people. All of us have no greater dream than
to see the day when nuclear weapons are banned from this Earth
forever.

Each Member of the Congress has a role to play in modernizing our
defenses, thus supporting our chances for a meaningful arms
agreement. Your vote this spring on the Peacekeeper missile will be a
critical test of our resolve to maintain the strength we need and move
toward mutual and verifiable arms reductions.

For the past 20 years we've believed that no war will be launched as
long as each side knows it can retaliate with a deadly counterstrike.
Well, I believe there's a better way of eliminating the threat of
nuclear war. It is a Strategic Defense Initiative aimed ultimately at
finding a nonnuclear defense against ballistic missiles. It's the most
hopeful possibility of the nuclear age. But it's not very well
understood.

Some say it will bring war to the heavens, but its purpose is to
deter war in the heavens and on Earth. Now, some say the research
would be expensive. Perhaps, but it could save millions of lives,
indeed humanity itself. And some say if we build such a system, the
Soviets will build a defense system of their own. Well, they already
have strategic defenses that surpass ours; a civil defense system,
where we have almost none; and a research program covering roughly
the same areas of technology that we're now exploring. And finally
some say the research will take a long time. Well, the answer to that
is: "Let's get started."

Harry Truman once said that, ultimately, our security and the world's
hopes for peace and human progress "lie not in measures of defense or
in the control of weapons, but in the growth and expansion of freedom
and self-government."

And tonight, we declare anew to our fellow citizens of the world:
Freedom is not the sole prerogative of a chosen few; it is the
universal right of all God's children. Look to where peace and
prosperity flourish today. It is in homes that freedom built.
Victories against poverty are greatest and peace most secure where
people live by laws that ensure free press, free speech, and freedom
to worship, vote, and create wealth.

Our mission is to nourish and defend freedom and democracy, and to
communicate these ideals everywhere we can. America's economic
success is freedom's success; it can be repeated a hundred times in a
hundred different nations. Many countries in east Asia and the Pacific
have few resources other than the enterprise of their own people. But
through low tax rates and free markets they've soared ahead of
centralized economies. And now China is opening up its economy to
meet its needs.

We need a stronger and simpler approach to the process of making and
implementing trade policy, and we'll be studying potential changes in
that process in the next few weeks. We've seen the benefits of free
trade and lived through the disasters of protectionism. Tonight I ask
all our trading partners, developed and developing alike, to join us
in a new round of trade negotiations to expand trade and competition
and strengthen the global economy--and to begin it in this next
year.

There are more than 3 billion human beings living in Third World
countries with an average per capita income of $650 a year. Many are
victims of dictatorships that impoverished them with taxation and
corruption. Let us ask our allies to join us in a practical program
of trade and assistance that fosters economic development through
personal incentives to help these people climb from poverty on their
own.

We cannot play innocents abroad in a world that's not innocent; nor
can we be passive when freedom is under seige. Without resources,
diplomacy cannot succeed. Our security assistance programs help
friendly governments defend themselves and give them confidence to
work for peace. And I hope that you in the Congress will understand
that, dollar for dollar, security assistance contributes as much to
global security as our own defense budget.

We must stand by all our democratic allies. And we must not break
faith with those who are risking their lives--on every continent,
from Afghanistan to Nicaragua--to defy Soviet-supported aggression
and secure rights which have been ours from birth.

The Sandinista dictatorship of Nicaragua, with full Cuban-Soviet bloc
support, not only persecutes its people, the church, and denies a free
press, but arms and provides bases for Communist terrorists attacking
neighboring states. Support for freedom fighters is self-defense and
totally consistent with the OAS and U.N. Charters. It is essential
that the Congress continue all facets of our assistance to Central
America. I want to work with you to support the democratic forces
whose struggle is tied to our own security.

And tonight, I've spoken of great plans and great dreams. They're
dreams we can make come true. Two hundred years of American history
should have taught us that nothing is impossible.

Ten years ago a young girl left Vietnam with her family, part of the
exodus that followed the fall of Saigon. They came to the United
States with no possessions and not knowing a word of English. Ten
years ago--the young girl studied hard, learned English, and finished
high school in the top of her class. And this May, May 22d to be
exact, is a big date on her calendar. Just 10 years from the time she
left Vietnam, she will graduate from the United States Military
Academy at West Point. I thought you might like to meet an American
hero named Jean Nguyen.

Now, there's someone else here tonight, born 79 years ago. She lives
in the inner city, where she cares for infants born of mothers who
are heroin addicts. The children, born in withdrawal, are sometimes
even dropped on her doorstep. She helps them with love. Go to her
house some night, and maybe you'll see her silhouette against the
window as she walks the floor talking softly, soothing a child in her
arms--Mother Hale of Harlem, and she, too, is an American hero.

Jean, Mother Hale, your lives tell us that the oldest American saying
is new again: Anything is possible in America if we have the faith,
the will, and the heart. History is asking us once again to be a
force for good in the world. Let us begin in unity, with justice, and
love.

Thank you, and God bless you.