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 unemployed, 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 of 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, grass roots 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 their roles
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.

NOTE: The President spoke at 9:03 p.m. in the House Chamber of the Capitol.
He was introduced by Thomas P. O'Neill, Jr., Speaker of the House of
Representatives. The address was broadcast live on nationwide radio
and television.