Mr. Vice President, Mr. Speaker, Members of the 88th Congress:

I congratulate you all--not merely on your electoral victory but on your
selected role in history. For you and I are privileged to serve the great
Republic in what could be the most decisive decade in its long history. The
choices we make, for good or ill, may well shape the state of the Union for
generations yet to come.

Little more than 100 weeks ago I assumed the office of President of the
United States. In seeking the help of the Congress and our countrymen, I
pledged no easy answers. I pledged--and asked--only toil and dedication.
These the Congress and the people have given in good measure. And today,
having witnessed in recent months a heightened respect for our national
purpose and power--having seen the courageous calm of a united people in
a perilous hour--and having observed a steady improvement in the
opportunities and well-being of our citizens--I can report to you that
the state of this old but youthful Union, in the 175th year of its life,
is good.

In the world beyond our borders, steady progress has been made in building
a world of order. The people of West Berlin remain both free and secure. A
settlement, though still precarious, has been reached in Laos. The
spearpoint of aggression has been blunted in Viet-Nam. The end of agony may
be in sight in the Congo. The doctrine of troika is dead. And, while danger
continues, a deadly threat has been removed in Cuba.

At home, the recession is behind us. Well over a million more men and women
are working today than were working 2 years ago. The average factory
work week is once again more than 40 hours; our industries are turning out
more goods than ever before; and more than half of the manufacturing
capacity that lay silent and wasted 100 weeks ago is humming with
activity.

In short, both at home and abroad, there may now be a temptation to relax.
For the road has been long, the burden heavy, and the pace consistently
urgent.

But we cannot be satisfied to rest here. This is the side of the hill, not
the top. The mere absence of war is not peace. The mere absence of
recession is not growth. We have made a beginning--but we have only begun.

Now the time has come to make the most of our gains--to translate the
renewal of our national strength into the achievement of our national
purpose.

                                   I.

America has enjoyed 22 months of uninterrupted economic recovery. But
recovery is not enough. If we are to prevail in the long run, we must
expand the long-run strength of our economy. We must move along the path to
a higher rate of growth and full employment.

For this would mean tens of billions of dollars more each year in
production, profits, wages, and public revenues. It would mean an end to
the persistent slack which has kept our unemployment at or above 5 percent
for 61 out of the past 62 months--and an end to the growing pressures for
such restrictive measures as the 35-hour week, which alone could increase
hourly labor costs by as much as 14 percent, start a new wage-price spiral
of inflation, and undercut our efforts to compete with other nations.

To achieve these greater gains, one step, above all, is essential--the
enactment this year of a substantial reduction and revision in Federal
income taxes.

For it is increasingly clear--to those in Government, business, and labor
who are responsible for our economy's success--that our obsolete tax system
exerts too heavy a drag on private purchasing power, profits, and
employment. Designed to check inflation in earlier years, it now checks
growth instead. It discourages extra effort and risk. It distorts the use
of resources. It invites recurrent recessions, depresses our Federal
revenues, and causes chronic budget deficits.

Now, when the inflationary pressures of the war and the post-war years no
longer threaten, and the dollar commands new respect--now, when no military
crisis strains our resources--now is the time to act. We cannot afford to
be timid or slow. For this is the most urgent task confronting the Congress
in 1963.

In an early message, I shall propose a permanent reduction in tax rates
which will lower liabilities by $13.5 billion. Of this, $11 billion results
from reducing individual tax rates, which now range between 20 and 91
percent, to a more sensible range of 14 to 65 percent, with a split in the
present first bracket. Two and one-half billion dollars results from
reducing corporate tax rates, from 52 percent--which gives the Government
today a majority interest in profits--to the permanent pre-Korean level of
47 percent. This is in addition to the more than $2 billion cut in
corporate tax liabilities resulting from last year's investment credit and
depreciation reform.

To achieve this reduction within the limits of a manageable budgetary
deficit, I urge: first, that these cuts be phased over 3 calendar years,
beginning in 1963 with a cut of some $6 billion at annual rates; second,
that these reductions be coupled with selected structural changes,
beginning in 1964, which will broaden the tax base, end unfair or
unnecessary preferences, remove or lighten certain hardships, and in the
net offset some $3.5 billion of the revenue loss; and third, that budgetary
receipts at the outset be increased by $1.5 billion a year, without any
change in tax liabilities, by gradually shifting the tax payments of large
corporations to a more current time schedule. This combined program, by
increasing the amount of our national income, will in time result in still
higher Federal revenues. It is a fiscally responsible program--the surest
and the soundest way of achieving in time a balanced budget in a balanced
full employment economy.

This net reduction in tax liabilities of $10 billion will increase the
purchasing power of American families and business enterprises in every tax
bracket, with greatest increase going to our low-income consumers. It will,
in addition, encourage the initiative and risk-taking on which our free
system depends--induce more investment, production, and capacity use--help
provide the 2 million new jobs we need every year--and reinforce the
American principle of additional reward for additional effort.

I do not say that a measure for tax reduction and reform is the only way to
achieve these goals.

No doubt a massive increase in Federal spending could also create jobs
and growth, but in today's setting, private consumers, employers, and
investors should be given a full opportunity first.

No doubt a temporary tax cut could provide a spur to our economy--but a
long-run problem compels a long-run solution.

No doubt a reduction in either individual or corporation taxes alone
would be of great help--but corporations need customers and job seekers
need jobs.

No doubt tax reduction without reform would sound simpler and more
attractive to many--but our growth is also hampered by a host of tax
inequities and special preferences which have distorted the flow of
investment.

And finally, there are no doubt some who would prefer to put off a tax
cut in the hope that ultimately an end to the cold war would make possible
an equivalent cut in expenditures--but that end is not in view and to wait
for it would be costly and self-defeating.

In submitting a tax program which will, of course, temporarily increase the
deficit but can ultimately end it--and in recognition of the need to
control expenditures--I will shortly submit a fiscal 1964 administrative
budget which, while allowing for needed rises in defense, space, and fixed
interest charges, holds total expenditures for all other purposes below
this year's level.

This requires the reduction or postponement of many desirable programs, the
absorption of a large part of last year's Federal pay raise through
personnel and other economies, the termination of certain installations and
projects, and the substitution in several programs of private for public
credit. But I am convinced that the enactment this year of tax reduction
and tax reform overshadows all other domestic problems in this Congress.
For we cannot for long lead the cause of peace and freedom, if we ever
cease to set the pace here at home.

                                  II.

Tax reduction alone, however, is not enough to strengthen our society, to
provide opportunities for the four million Americans who are born every
year, to improve the lives of 32 million Americans who live on the
outskirts of poverty.

The quality of American life must keep pace with the quantity of American
goods.

This country cannot afford to be materially rich and spiritually poor.

Therefore, by holding down the budgetary cost of existing programs to keep
within the limitations I have set, it is both possible and imperative to
adopt other new measures that we cannot afford to postpone.

These measures are based on a series of fundamental premises, grouped under
four related headings:

First, we need to strengthen our Nation by investing in our youth.

The future of any country which is dependent upon the will and wisdom of
its citizens is damaged, and irreparably damaged, whenever any of its
children is not educated to the full extent of his talent, from grade
school through graduate school. Today, an estimated 4 out of every 10
students in the 5th grade will not even finish high school--and that is a
waste we cannot afford.

In addition, there is no reason why one million young Americans, out of
school and out of work, should all remain unwanted and often untrained on
our city streets when their energies can be put to good use.

Finally, the overseas success of our Peace Corps volunteers, most of them
young men and women carrying skills and ideas to needy people, suggests the
merit of a similar corps serving our own community needs: in mental
hospitals, on Indian reservations, in centers for the aged or for young
delinquents, in schools for the illiterate or the handicapped. As the
idealism of our youth has served world peace, so can it serve the domestic
tranquility.

Second, we need to strengthen our Nation by safeguarding its health.

Our working men and women, instead of being forced to beg for help from
public charity once they are old and ill, should start contributing now to
their own retirement health program through the Social Security System.

Moreover, all our miracles of medical research will count for little if
we cannot reverse the growing nationwide shortage of doctors, dentists, and
nurses, and the widespread shortages of nursing homes and modern urban
hospital facilities. Merely to keep the present ratio of doctors and
dentists from declining any further, we must over the next 10 years
increase the capacity of our medical schools by 50 percent and our dental
schools by 100 percent.

Finally, and of deep concern, I believe that the abandonment of the
mentally ill and the mentally retarded to the grim mercy of custodial
institutions too often inflicts on them and on their families a needless
cruelty which this Nation should not endure. The incidence of mental
retardation in this country is three times as high as that of Sweden, for
example--and that figure can and must be reduced.

Third, we need to strengthen our Nation by protecting the basic rights of
its citizens.

The right to competent counsel must be assured to every man accused of
crime in Federal court, regardless of his means.

And the most precious and powerful right in the world, the right to vote
in a free American election, must not be denied to any citizen on grounds
of his race or color. I wish that all qualified Americans permitted to vote
were willing to vote, but surely in this centennial year of Emancipation
all those who are willing to vote should always be permitted.

Fourth, we need to strengthen our Nation by making the best and the most
economical use of its resources and facilities.

Our economic health depends on healthy transportation arteries; and I
believe the way to a more modern, economical choice of national
transportation service is through increased competition and decreased
regulation. Local mass transit, faring even worse, is as essential a
community service as hospitals and highways. Nearly three-fourths of our
citizens live in urban areas, which occupy only 2 percent of our land--and
if local transit is to survive and relieve the congestion of these cities,
it needs Federal stimulation and assistance.

Next, this Government is in the storage and stockpile business to the
melancholy tune of more than $16 billion. We must continue to support farm
income, but we should not pile more farm surpluses on top of the $7.5
billion we already own. We must maintain a stockpile of strategic
materials, but the $8.5 billion we have acquired--for reasons both good and
bad--is much more than we need; and we should be empowered to dispose of
the excess in ways which will not cause market disruption.

Finally, our already overcrowded national parks and recreation areas will
have twice as many visitors 10 years from now as they do today. If we do
not plan today for the future growth of these and other great natural
assets--not only parks and forests but wildlife and wilderness preserves,
and water projects of all kinds--our children and their children will be
poorer in every sense of the word.

These are not domestic concerns alone. For upon our achievement of greater
vitality and strength here at home hang our fate and future in the world:
our ability to sustain and supply the security of free men and nations, our
ability to command their respect for our leadership, our ability to expand
our trade without threat to our balance of payments, and our ability to
adjust to the changing demands of cold war competition and challenge.

We shall be judged more by what we do at home than by what we preach
abroad. Nothing we could do to help the developing countries would help
them half as much as a booming U.S. economy. And nothing our opponents
could do to encourage their own ambitions would encourage them half as much
as a chronic, lagging U.S. economy. These domestic tasks do not divert
energy from our security--they provide the very foundation for freedom's
survival and success.

                                 III.

Turning to the world outside, it was only a few years ago--in Southeast
Asia, Africa, Eastern Europe, Latin America, even outer space--that
communism sought to convey the image of a unified, confident, and expanding
empire, closing in on a sluggish America and a free world in disarray. But
few people would hold to that picture today.

In these past months we have reaffirmed the scientific and military
superiority of freedom. We have doubled our efforts in space, to assure us
of being first in the future. We have undertaken the most far-reaching
defense improvements in the peacetime history of this country. And we have
maintained the frontiers of freedom from Viet-Nam to West Berlin.

But complacency or self-congratulation can imperil our security as much as
the weapons of tyranny. A moment of pause is not a promise of peace.
Dangerous problems remain from Cuba to the South China Sea. The world's
prognosis prescribes, in short, not a year's vacation for us, but a year of
obligation and opportunity.

Four special avenues of opportunity stand out: the Atlantic Alliance, the
developing nations, the new Sino-Soviet difficulties, and the search for
worldwide peace.

                                 IV.

First, how fares the grand alliance? Free Europe is entering into a new
phase of its long and brilliant history. The era of colonial expansion has
passed; the era of national rivalries is fading; and a new era of
interdependence and unity is taking shape. Defying the old prophecies of
Marx, consenting to what no conqueror could ever compel, the free nations
of Europe are moving toward a unity of purpose and power and policy in
every sphere of activity.

For 17 years this movement has had our consistent support, both political
and economic. Far from resenting the new Europe, we regard her as a welcome
partner, not a rival. For the road to world peace and freedom is still
long, and there are burdens which only full partners can share--in
supporting the common defense, in expanding world trade, in aligning our
balance of payments, in aiding the emergent nations, in concerting
political and economic policies, and in welcoming to our common effort
other industrialized nations, notably Japan, whose remarkable economic and
political development of the 1950's permits it now to play on the world
scene a major constructive role.

No doubt differences of opinion will continue to get more attention than
agreements on action, as Europe moves from independence to more formal
interdependence. But these are honest differences among honorable
associates--more real and frequent, in fact, among our Western European
allies than between them and the United States. For the unity of freedom
has never relied on uniformity of opinion. But the basic agreement of this
alliance on fundamental issues continues.

The first task of the alliance remains the common defense. Last month Prime
Minister Macmillan and I laid plans for a new stage in our long cooperative
effort, one which aims to assist in the wider task of framing a common
nuclear defense for the whole alliance.

The Nassau agreement recognizes that the security of the West is
indivisible, and so must be our defense. But it also recognizes that this
is an alliance of proud and sovereign nations, and works best when we do
not forget it. It recognizes further that the nuclear defense of the West
is not a matter for the present nuclear powers alone--that France will be
such a power in the future--and that ways must be found without increasing
the hazards of nuclear diffusion, to increase the role of our other
partners in planning, manning, and directing a truly multilateral nuclear
force within an increasingly intimate NATO alliance. Finally, the Nassau
agreement recognizes that nuclear defense is not enough, that the agreed
NATO levels of conventional strength must be met, and that the alliance
cannot afford to be in a position of having to answer every threat with
nuclear weapons or nothing.

We remain too near the Nassau decisions, and too far from their full
realization, to know their place in history. But I believe that, for the
first time, the door is open for the nuclear defense of the alliance to
become a source of confidence, instead of a cause of contention.

The next most pressing concern of the alliance is our common economic goals
of trade and growth. This Nation continues to be concerned about its
balance-of-payments deficit, which, despite its decline, remains a stubborn
and troublesome problem. We believe, moreover, that closer economic ties
among all free nations are essential to prosperity and peace. And neither
we nor the members of the European Common Market are so affluent that we
can long afford to shelter high cost farms or factories from the winds of
foreign competition, or to restrict the channels of trade with other
nations of the free world. If the Common Market should move toward
protectionism and restrictionism, it would undermine its own basic
principles. This Government means to use the authority conferred on it last
year by the Congress to encourage trade expansion on both sides of the
Atlantic and around the world.

                                   V.

Second, what of the developing and non-aligned nations? They were shocked
by the Soviets' sudden and secret attempt to transform Cuba into a nuclear
striking base--and by Communist China's arrogant invasion of India. They
have been reassured by our prompt assistance to India, by our support
through the United Nations of the Congo's unification, by our patient
search for disarmament, and by the improvement in our treatment of citizens
and visitors whose skins do not happen to be white. And as the older
colonialism recedes, and the neo-colonialism of the Communist powers stands
out more starkly than ever, they realize more clearly that the issue in the
world struggle is not communism versus capitalism, but coercion versus free
choice.

They are beginning to realize that the longing for independence is the same
the world over, whether it is the independence of West Berlin or Viet-Nam.
They are beginning to realize that such independence runs athwart all
Communist ambitions but is in keeping with our own--and that our approach
to their diverse needs is resilient and resourceful, while the Communists
are still relying on ancient doctrines and dogmas.

Nevertheless it is hard for any nation to focus on an external or
subversive threat to its independence when its energies are drained in
daily combat with the forces of poverty and despair. It makes little sense
for us to assail, in speeches and resolutions, the horrors of communism, to
spend $50 billion a year to prevent its military advance--and then to
begrudge spending, largely on American products, less than one-tenth of
that amount to help other nations strengthen their independence and cure
the social chaos in which communism has always thrived.

I am proud--and I think most Americans are proud--of a mutual defense and
assistance program, evolved with bipartisan support in three
administrations, which has, with all its recognized problems, contributed
to the fact that not a single one of the nearly fifty U.N. members to gain
independence since the Second World War has succumbed to Communist
control.

I am proud of a program that has helped to arm and feed and clothe millions
of people who live on the front lines of freedom.

I am especially proud that this country has put forward for the 60's a vast
cooperative effort to achieve economic growth and social progress
throughout the Americas--the Alliance for Progress.

I do not underestimate the difficulties that we face in this mutual effort
among our close neighbors, but the free states of this hemisphere, working
in close collaboration, have begun to make this alliance a living reality.
Today it is feeding one out of every four school age children in Latin
America an extra food ration from our farm surplus. It has distributed 1.5
million school books and is building 17,000 classrooms. It has helped
resettle tens of thousands of farm families on land they can call their
own. It is stimulating our good neighbors to more self-help and
self-reform--fiscal, social, institutional, and land reforms. It is
bringing new housing and hope, new health and dignity, to millions who were
forgotten. The men and women of this hemisphere know that the alliance
cannot succeed if it is only another name for United States handouts--that
it can succeed only as the Latin American nations themselves devote their
best effort to fulfilling its goals.

This story is the same in Africa, in the Middle East, and in Asia. Wherever
nations are willing to help themselves, we stand ready to help them build
new bulwarks of freedom. We are not purchasing votes for the cold war; we
have gone to the aid of imperiled nations, neutrals and allies alike. What
we do ask--and all that we ask--is that our help be used to best advantage,
and that their own efforts not be diverted by needless quarrels with other
independent nations.

Despite all its past achievements, the continued progress of the Mutual
Assistance Program requires a persistent discontent with present
performance. We have been reorganizing this program to make it a more
effective, efficient instrument--and that process will continue this year.

But free world development will still be an uphill struggle. Government aid
can only supplement the role of private investment, trade expansion,
commodity stabilization, and, above all, internal self-improvement. The
processes of growth are gradual--bearing fruit in a decade, not a day. Our
successes will be neither quick nor dramatic. But if these programs were
ever to be ended, our failures in a dozen countries would be sudden and
certain.

Neither money nor technical assistance, however, can be our only weapon
against poverty. In the end, the crucial effort is one of purpose,
requiring the fuel of finance but also a torch of idealism. And nothing
carries the spirit of this American idealism more effectively to the far
corners of the earth than the American Peace Corps.

A year ago, less than 900 Peace Corps volunteers were on the job. A year
from now they will number more than 9,000--men and women, aged 18 to 79,
willing to give 2 years of their lives to helping people in other lands.

There are, in fact, nearly a million Americans serving their country and
the cause of freedom in overseas posts, a record no other people can match.
Surely those of us who stay at home should be glad to help indirectly; by
supporting our aid programs; .by opening our doors to foreign visitors and
diplomats and students; and by proving, day by day, by deed as well as
word, that we are a just and generous people.

                                  VI.

Third, what comfort can we take from the increasing strains and tensions
within the Communist bloc? Here hope must be tempered with caution. For the
Soviet-Chinese disagreement is over means, not ends. A dispute over how
best to bury the free world is no grounds for Western rejoicing.

Nevertheless, while a strain is not a fracture, it is clear that the forces
of diversity are at work inside the Communist camp, despite all the iron
disciplines of regimentation and all the iron dogmatisms of ideology. Marx
is proven wrong once again: for it is the closed Communist societies, not
the free and open societies which carry within themselves the seeds of
internal disintegration.

The disarray of the Communist empire has been heightened by two other
formidable forces. One is the historical force of nationalism--and the
yearning of all men to be free. The other is the gross inefficiency of
their economies. For a closed society is not open to ideas of progress--and
a police state finds that it cannot command the grain to grow.

New nations asked to choose between two competing systems need only compare
conditions in East and West Germany, Eastern and Western Europe, North and
South Viet-Nam. They need only compare the disillusionment of Communist
Cuba with the promise of the Alliance for Progress. And all the world knows
that no successful system builds a wall to keep its people in and freedom
out--and the wall of shame dividing Berlin is a symbol of Communist
failure.

                                 VII.

Finally, what can we do to move from the present pause toward enduring
peace? Again I would counsel caution. I foresee no spectacular reversal in
Communist methods or goals. But if all these trends and developments can
persuade the Soviet Union to walk the path of peace, then let her know that
all free nations will journey with her. But until that choice is made, and
until the world can develop a reliable system of international security,
the free peoples have no choice but to keep their arms nearby.

This country, therefore, continues to require the best defense in the
world--a defense which is suited to the sixties. This means, unfortunately,
a rising defense budget--for there is no substitute for adequate defense,
and no "bargain basement" way of achieving it. It means the expenditure of
more than $15 billion this year on nuclear weapons systems alone, a sum
which is about equal to the combined defense budgets of our European
Allies.

But it also means improved air and missile defenses, improved civil
defense, a strengthened anti-guerrilla capacity and, of prime importance,
more powerful and flexible non-nuclear forces. For threats of massive
retaliation may not deter piecemeal aggression--and a line of destroyers in
a quarantine, or a division of well-equipped men on a border, may be more
useful to our real security than the multiplication of awesome weapons
beyond all rational need.

But our commitment to national safety is not a commitment to expand our
military establishment indefinitely. We do not dismiss disarmament as
merely an idle dream. For we believe that, in the end, it is the only way
to assure the security of all without impairing the interests of any. Nor
do we mistake honorable negotiation for appeasement. While we shall never
weary in the defense of freedom, neither shall we ever abandon the pursuit
of peace.

In this quest, the United Nations requires our full and continued support.
Its value in serving the cause of peace has been shown anew in its role in
the West New Guinea settlement, in its use as a forum for the Cuban crisis,
and in its task of unification in the Congo. Today the United Nations is
primarily the protector of the small and the weak, and a safety valve for
the strong. Tomorrow it can form the framework for a world of law--a world
in which no nation dictates the destiny of another, and in which the vast
resources now devoted to destructive means will serve constructive ends.

In short, let our adversaries choose. If they choose peaceful competition,
they shall have it. If they come to realize that their ambitions cannot
succeed--if they see their "wars of liberation" and subversion will
ultimately fail--if they recognize that there is more security in accepting
inspection than in permitting new nations to master the black arts of
nuclear war--and if they are willing to turn their energies, as we are, to
the great unfinished tasks of our own peoples--then, surely, the areas of
agreement can be very wide indeed: a clear understanding about Berlin,
stability in Southeast Asia, an end to nuclear testing, new checks on
surprise or accidental attack, and, ultimately, general and complete
disarmament.

                                 VIII.

For we seek not the worldwide victory of one nation or system but a
worldwide victory of man. The modern globe is too small, its weapons are
too destructive, and its disorders are too contagious to permit any other
kind of victory.

To achieve this end, the United States will continue to spend a greater
portion of its national production than any other people in the free world.
For 15 years no other free nation has demanded so much of itself. Through
hot wars and cold, through recession and prosperity, through the ages of
the atom and outer space, the American people have never faltered and their
faith has never flagged. If at times our actions seem to make life
difficult for others, it is only because history has made life difficult
for us all.

But difficult days need not be dark. I think these are proud and memorable
days in the cause of peace and freedom. We are proud, for example, of Major
Rudolf Anderson who gave his life over the island of Cuba. We salute
Specialist James Allen Johnson who died on the border of South Korea. We
pay honor to Sergeant Gerald Pendell who was killed in Viet-Nam. They are
among the many who in this century, far from home, have died for our
country. Our task now, and the task of all Americans is to live up to their
commitment.

My friends: I close on a note of hope. We are not lulled by the momentary
calm of the sea or the somewhat clearer skies above. We know the turbulence
that lies below, and the storms that are beyond the horizon this year. But
now the winds of change appear to be blowing more strongly than ever, in
the world of communism as well as our own. For 175 years we have sailed
with those winds at our back, and with the tides of human freedom in our
favor. We steer our ship with hope, as Thomas Jefferson said, "leaving Fear
astern."

Today we still welcome those winds of change--and we have every reason to
believe that our tide is running strong. With thanks to Almighty God for
seeing us through a perilous passage, we ask His help anew in guiding the
"Good Ship Union."