Speech Transcript:

 Mr. Speaker, Mr. Vice President, members of Congress: It's a great
privilege to be here to outline a new budget and a new approach for
governing our great country. I thank you for your invitation to speak
here tonight. I know Congress had to formally invite me, and it could
have been a close vote. So, Mr. Vice President, I appreciate you
being here to break the tie.

I want to thank so many of you who have accepted my invitation to
come to the White House to discuss important issues. We're off to a
good start. I will continue to meet with you and ask for your input.
You have been kind and candid, and I thank you for making a new
President feel welcome.

The last time I visited the Capitol, I came to take an oath on the
steps of this building. I pledged to honor our Constitution and laws.
And I asked you to join me in setting a tone of civility and respect
in Washington.

I hope America is noticing the difference, because we're making
progress. Together, we are changing the tone in the Nation's Capital.
And this spirit of respect and cooperation is vital, because, in the
end, we will be judged not only by what we say or how we say it, we
will be judged by what we're able to accomplish.

America today is a nation with great challenges, but greater
resources. An artist using statistics as a brush could paint two very
different pictures of our country. One would have warning signs:
increasing layoffs, rising energy prices, too many failing schools,
persistent poverty, the stubborn vestiges of racism. Another picture
would be full of blessings: a balanced budget, big surpluses, a
military that is second to none, a country at peace with its
neighbors, technology that is revolutionizing the world, and our
greatest strength -- concerned citizens who care for our country and
care for each other.

Neither picture is complete in and of itself. And tonight I challenge
and invite Congress to work with me to use the resources of one
picture to repaint the other; to direct the advantages of our time to
solve the problems of our people. Some of these resources will come
from government. Some, but not all.

Year after year in Washington, budget debates seem to come down to an
old, tired argument: on one side, those who want more government,
regardless of the cost; on the other, those who want less government,
regardless of the need. We should leave those arguments to the last
century, and chart a different course.

Government has a role, and an important role. Yet, too much
government crowds out initiative and hard work, private charity and
the private economy. Our new governing vision says government should
be active, but limited; engaged, but not overbearing. And my budget
is based on that philosophy.

It is reasonable, and it is responsible. It meets our obligations,
and funds our growing needs. We increase spending next year for
Social Security and Medicare, and other entitlement programs, by $81
billion. We've increased spending for discretionary programs by a
very responsible 4 percent, above the rate of inflation. My plan pays
down an unprecedented amount of our national debt. And then, when
money is still left over, my plan returns it to the people who earned
it in the first place.

A budget's impact is counted in dollars, but measured in lives.
Excellent schools, quality health care, a secure retirement, a
cleaner environment, a stronger defense -- these are all important
needs, and we fund them. The highest percentage increase in our
budget should go to our children's education. Education is not my top
priority -- education is my top priority and, by supporting this
budget, you'll make it yours, as well.

Reading is the foundation of all learning. So during the next five
years, we triple spending, adding $5 billion to help every child in
America learn to read. Values are important, so we've tripled funding
for character education to teach our children not only reading and
writing, but right from wrong.

We've increased funding to train and recruit teachers, because we
know a good education starts with a good teacher. And I have a
wonderful partner in this effort. I like teachers so much, I married
one. Laura has begun a new effort to recruit Americans to the
profession that will shape our future -- teaching. She will travel
across America to promote sound teaching practices and early reading
skills in our schools and in programs such as Head Start.

When it comes to our schools, dollars alone do not always make the
difference. Funding is important, and so is reform. So we must tie
funding to higher standards and accountability for results.

I believe in local control of schools. We should not, and we will
not, run public schools from Washington, D.C. Yet when the federal
government spends tax dollars, we must insist on results. Children
should be tested on basic reading and math skills every year between
grades three and eight. Measuring is the only way to know whether all
our children are learning. And I want to know, because I refuse to
leave any child behind in America.

Critics of testing contend it distracts from learning. They talk
about teaching to the test. But let's put that logic to the test. If
you test a child on basic math and reading skills, and you're
teaching to the test, you're teaching math and reading. And that's
the whole idea. As standards rise, local schools will need more
flexibility to meet them. So we must streamline the dozens of federal
education programs into five, and let states spend money in those
categories as they see fit.

Schools will be given a reasonable chance to improve and the support
to do so. Yet, if they don't, if they continue to fail, we must give
parents and students different options -- a better public school, a
private school, tutoring or a charter school. In the end, every child
in a bad situation must be given a better choice because, when it
comes to our children, failure is simply not an option.

Another priority in my budget is to keep the vital promises of
Medicare and Social Security, and together we will do so. To meet the
health care needs of all America's seniors, we double the Medicare
budget over the next 10 years. My budget dedicates $238 billion to
Medicare next year alone, enough to fund all current programs and to
begin a new prescription drug benefit for low-income seniors. No
senior in America should have to choose between buying food and
buying prescriptions.

To make sure the retirement savings of America's seniors are not
diverted in any other program, my budget protects all $2.6 trillion
of the Social Security surplus for Social Security, and for Social
Security alone.

My budget puts a priority on access to health care, without telling
Americans what doctor they have to see or what coverage they must
choose. Many working Americans do not have health care coverage, so
we will help them buy their own insurance with refundable tax
credits. And to provide quality care in low-income neighborhoods,
over the next five years we will double the number of people served
at community health care centers.

And we will address the concerns of those who have health coverage,
yet worry their insurance company doesn't care and won't pay.
Together this Congress and this President will find common ground to
make sure doctors make medical decisions, and patients get the health
care they deserve with a patients' bill of rights.

When it comes to their health, people want to get the medical care
they need, not be forced to go to court because they didn't get it.
We will ensure access to the courts for those with legitimate claims.
But first, let's put in place a strong, independent review so we
promote quality health care, not frivolous lawsuits.

My budget also increases funding for medical research, which gives
hope to many who struggle with serious disease. Our prayers tonight
are with one of your own who is engaged in his own fight against
cancer -- a fine representative, and a good man, Congressman Joe
Moakley. I can think of no more appropriate tribute to Joe than to
have the Congress finish the job of doubling the budget for the
National Institutes of Health.

My new Freedom Initiative for Americans with Disabilities funds new
technologies, expands opportunities to work, and makes our society
more welcoming. For the more than 50 million Americans with
disabilities, we need to break down barriers to equality.

The budget I propose to you also supports the people who keep our
country strong and free, the men and women who serve in the United
States military. I'm requesting $5.7 billion in increased military
pay and benefits, and health care and housing. Our men and women in
uniform give America their best and we owe them our support.

America 's veterans honored their commitment to our country through
their military service. I will honor our commitment to them with a
million-dollar increase to ensure better access to quality care and
faster decisions on benefit claims.

My budget will improve our environment by accelerating the cleanup of
toxic brownfields. And I propose we make a major investment in
conservation by fully funding the Land and Water Conservation Fund.
Our national parks have a special place in our country's life. Our
parks are places of great natural beauty and history. As good
stewards, we must leave them better than we found them. So I propose
providing $4.9 billion over five years for the upkeep of these
national treasures.

And my budget adopts a hopeful new approach to help the poor and the
disadvantaged. We must encourage and support the work of charities
and faith-based and community groups that offer help and love one
person at a time. These groups are working in every neighborhood in
America to fight homelessness and addiction and domestic violence; to
provide a hot meal or a mentor or a safe haven for our children.
Government should welcome these groups to apply for funds, not
discriminate against them.

Government cannot be replaced by charities or volunteers. Government
should not fund religious activities. But our nation should support
the good works of these good people who are helping their neighbors
in need. So I propose allowing all taxpayers, whether they itemize or
not, to deduct their charitable contributions. Estimates show this
could encourage as much as $14 billion a year in new charitable
giving, money that will save and change lives.

Our budget provides more than $700 million over the next 10 years for
a federal compassion capital fund, with a focused and noble mission,
to provide a mentor to the more than 100 million children with a
parent in prison, and to support other local efforts to fight
illiteracy, teen pregnancy, drug addiction and other difficult
problems.

With us tonight is the Mayor of Philadelphia. Please help me welcome
Mayor John Street. Mayor Street has encouraged faith-based and
community organizations to make a significant difference in
Philadelphia. He's invited me to his city this summer to see
compassionate action. I'm personally aware of just how effective the
Mayor is. Mayor Street's a Democrat. Let the record show, I lost his
city, big time. But some things are bigger than politics. So I look
forward to coming to your city, to see your faith-based programs in
action.

As government promotes compassion, it also must promote justice. Too
many of our citizens have cause to doubt our nation's justice, when
the law points a finger of suspicion at groups, instead of
individuals. All our citizens are created equal, and must be treated
equally.

Earlier today, I asked John Ashcroft, the Attorney General, to
develop specific recommendations to end racial profiling. It's wrong
and we will end it in America. In so doing, we will not hinder the
work of our nation's brave police officers. They protect us every day
-- often at great risk. But by stopping the abuses of a few, we will
add to the public confidence our police officers earn and deserve.

My budget has funded a responsible increase in our ongoing
operations. It has funded our nation's important priorities. It has
protected Social Security and Medicare. And our surpluses are big
enough that there is still money left over.

Many of you have talked about the need to pay down our national debt.
I listened, and I agree. We owe it to our children and grandchildren
to act now, and I hope you will join me to pay down $2 trillion in
debt during the next 10 years. At the end of those 10 years, we will
have paid down all the debt that is available to retire. That is more
debt, repaid more quickly than has ever been repaid by any nation at
any time in history.

We should also prepare for the unexpected, for the uncertainties of
the future. We should approach our nation's budget as any prudent
family would, with a contingency fund for emergencies or additional
spending needs. For example, after a strategic review, we may need to
increase defense spending. We may need to increase spending for our
farmers or additional money to reform Medicare. And so, my budget
sets aside almost a trillion dollars over 10 years for additional
needs. That is one trillion additional reasons you can feel
comfortable supporting this budget.

We have increased our budget at a responsible 4 percent. We have
funded our priorities. We paid down all the available debt. We have
prepared for contingencies. And we still have money left over.

Yogi Berra once said, "When you come to a fork in the road, take it."
Now, we come to a fork in the road; we have two choices. Even though
we have already met our needs, we could spend the money on more and
bigger government. That's the road our nation has traveled in recent
years.

Last year, government spending shot up 8 percent. That's far more
than our economy grew, far more than personal income grew, and far
more than the rate of inflation. If you continue on that road, you
will spend the surplus and have to dip into Social Security to pay
other bills. Unrestrained government spending is a dangerous road to
deficits, so we must take a different path. The other choice is to
let the American people spend their own money to meet their own
needs.

I hope you will join me in standing firmly on the side of the people.
You see, the growing surplus exists because taxes are too high and
government is charging more than it needs. The people of America have
been overcharged and, on their behalf, I am here asking for a refund.

Some say my tax plan is too big. Others say it's too small. I
respectfully disagree. This plan is just right. I didn't throw darts
at the board to come up with a number for tax relief. I didn't take a
poll or develop an arbitrary formula that might sound good. I looked
at problems in the Tax Code and calculated the cost to fix them.

A tax rate of 15 percent is too high for those who earn low wages, so
we must lower the rate to 10 percent. No one should pay more than a
third of the money they earn in federal income taxes, so we lowered
the top rate to 33 percent.

This reform will be welcome relief for America's small businesses,
which often pay taxes at the highest rate. And help for small
business means jobs for Americans. We simplified the Tax Code by
reducing the number of tax rates from the current five rates to four
lower ones, 10 percent, 15, 25 and 33 percent. In my plan, no one is
targeted in or targeted out. Everyone who pays income taxes will get
relief.

Our government should not tax, and thereby discourage marriage, so we
reduced the marriage penalty. I want to help families rear and support
their children, so we doubled the child credit to $1,000 per child.
It's not fair to tax the same earnings twice -- once when you earn
them, and again when you die -- so we must repeal the death tax.

These changes add up to significant help. A typical family with two
children will save $1,600 a year on their federal income taxes. Now,
$1,600 may not sound like a lot to some, but it means a lot to many
families: $1,600 buys gas for two cars for an entire year; it pays
tuition for a year at a community college; it pays the average family
grocery bill for three months. That's real money.

With us tonight representing many American families are Steven and
Josefina Ramos. They are from Pennsylvania. But they could be from
any one of your districts. Steven is the network administrator for a
school district. Josefina is a Spanish teacher at a charter school.
And they have a two-year-old daughter.

Steven and Josefina tell me they pay almost $8,000 a year in federal
income taxes. My plan will save them more than $2,000. Let me tell
you what Steven says: "Two thousand dollars a year means a lot to my
family. If we had this money, it would help us reach our goal of
paying off our personal debt in two years' time." After that, Steven
and Josefina want to start saving for Lianna's college education.

My attitude is, government should never stand in the way of families
achieving their dreams. And as we debate this issue, always remember,
the surplus is not the government's money, the surplus is the people's
money.

For lower-income families, my tax plan restores basic fairness. Right
now, complicated tax rules punish hard work. A waitress supporting two
children on $25,000 a year can lose nearly half of every additional
dollar she earns above the $25,000. Her overtime, her hardest hours,
are taxed at nearly 20 percent. This sends a terrible message: you'll
never get ahead. But America's message must be different. We must
honor hard work, never punish it. With tax relief, overtime will no
longer be over-taxed time for the waitress. People with the smallest
incomes will get the highest percentage of reductions. And millions
of additional American families will be removed from the income tax
rolls entirely.

Tax relief is right and tax relief is urgent. The long economic
expansion that began almost 10 years ago is faltering. Lower interest
rates will eventually help, but we cannot assume they will do the job
all by themselves.

Forty years ago, and then 20 years ago, two Presidents, one Democrat,
one Republican, John F. Kennedy and Ronald Reagan, advocated tax cuts
to, in President Kennedy's words, get this country moving again. They
knew then what we must do now. To create economic growth and
opportunity, we must put money back into the hands of the people who
buy goods and create jobs.

We must act quickly. The Chairman of the Federal Reserve has
testified before Congress that tax cuts often come too late to
stimulate economic recovery. So I want to work with you to give our
economy an important jump-start by making tax relief retroactive.

We must act now because it is the right thing to do. We must also act
now because we have other things to do. We must show courage to
confront and resolve tough challenges, to restructure our nation's
defenses, to meet our growing need for energy, and to reform Medicare
and Social Security.

America has a window of opportunity to extend and secure our present
peace by promoting a distinctly American internationalism. We will
work with our allies and friends to be a force for good and a
champion of freedom. We will work for free markets, free trade and
freedom from oppression. Nations making progress toward freedom will
find America is their friend. We will promote our values. We will
promote the peace. And we need a strong military to keep the peace.

But our military was shaped to confront the challenges of the past.
So I've asked the Secretary of Defense to review America's Armed
Forces and prepare to transform them to meet emerging threats. My
budget makes a down payment on the research and development that will
be required. Yet, in our broader transformation effort, we must put
strategy first, then spending. Our defense vision will drive our
defense budget, not the other way around.

Our nation also needs a clear strategy to confront the threats of the
21st century -- threats that are more widespread and less certain.
They range from terrorists who threaten with bombs to tyrants in
rogue nations intent upon developing weapons of mass destruction. To
protect our own people, our allies and friends, we must develop and
we must deploy effective missile defenses.

And as we transform our military, we can discard Cold War relics, and
reduce our own nuclear forces to reflect today's needs. A strong
America is the world's best hope for peace and freedom.

Yet the cause of freedom rests on more than our ability to defend
ourselves and our allies. Freedom is exported every day, as we ship
goods and products that improve the lives of millions of people. Free
trade brings greater political and personal freedom. Each of the
previous five Presidents has had the ability to negotiate far
reaching trade agreements. Tonight I ask you to give me the strong
hand of presidential trade promotion authority, and to do so
quickly.

As we meet tonight, many citizens are struggling with the high cost
of energy. We have a serious energy problem that demands a national
energy policy. The West is confronting a major energy shortage that
has resulted in high prices and uncertainty. I've asked federal
agencies to work with California officials to help speed construction
of new energy sources, and I have direct Vice President Cheney,
Commerce Secretary Evans, Energy Secretary Abraham and other senior
members in my administration to develop a national energy policy.

Our energy demand outstrips our supply. We can produce more energy at
home while protecting our environment, and we must. We can produce
more electricity to meet demand, and we must. We can promote
alternative energy sources and conservation, and we must. America
must become more energy-independent, and we will.

Perhaps the biggest test of our foresight and courage will be
reforming Medicare and Social Security. Medicare's finances are
strained and its coverage is outdated. Ninety-nine percent of
employer-provided health plans offer some form of prescription drug
coverage; Medicare does not. The framework for reform has been
developed by Senators Frist and Breaux and Congressman Thomas, and
now is the time to act.

Medicare must be modernized, and we must make sure that every senior
on Medicare can choose a health care plan that offers prescription
drugs.

Seven years from now, the baby boom generation will begin to claim
Social Security benefits. Every one in this chamber knows that Social
Security is not prepared to fully fund their retirement. And we only
have a couple of years to get prepared. Without reform, this country
will one day awaken to a stark choice: either a drastic rise in
payroll taxes or a radical cut in retirement benefits.

There is a better way. This spring I will form a presidential
commission to reform Social Security. The commission will make its
recommendations by next fall. Reform should be based on these
principles: It must preserve the benefits of all current retirees and
those nearing retirement. It must return Social Security to sound
financial footing. And it must offer personal savings accounts to
younger workers who want them.

Social Security now offers workers a return of less than 2 percent on
the money they pay into the system. To save the system, we must
increase that by allowing younger workers to make safe, sound
investments that yield a higher rate of return. Ownership, access to
wealth and independence should not be the privilege of the few. They
are the hope of every American, and we must make them the foundation
of Social Security.

By confronting the tough challenge of reform, by being responsible
with our budget, we can earn the trust of the American people. And we
can add to that trust by enacting fair and balanced election and
campaign reforms.

The agenda I have set before you tonight is worthy of a great nation.
America is a nation at peace, but not a nation at rest. Much has been
given to us, and much is expected. Let us agree to bridge old
divides. But let us also agree that our goodwill must be dedicated to
great goals. Bipartisan is more than minding our matters. It is doing
our duty.

No one can speak in this Capitol and not be awed by its history. As
so many turning points, debates in these chambers have reflected the
collected or divided conscience of our country. And when we walk
through Statuary Hall and see those men and women of marble, we're
reminded of their courage and achievement.

Yet America's purpose is never found only in statues or history.
America's purpose always stands before us. Our generation must show
courage in a time of blessing, as our nation has always shown in
times of crisis. And our courage, issue by issue, can gather to
greatness and serve our country. This is the privilege and
responsibility we share. And if we work together, we can prove that
public service is noble.

We all came here for a reason. We all have things we want to
accomplish and promises to keep. Juntos podemos -- together we can.

We can make Americans proud of their government. Together we can
share in the credit of making our country more prosperous and
generous and just, and earn from our conscience and from our fellow
citizens the highest possible praise: Well done, good and faithful
servants.

Thank you all. Good night and God bless.