States. [laughter] [applause] pres. Reagan thank you, very much. Thank you. Thank you. Numbers will be seated. Members of the congress, i have the high privilege and the distinct honor of presenting to you the president of the united states. [applause] pres. Reagan thank you. Thank you. Thank you very much. Thank you. Mr. Speaker thank you. Thank you very much. Mr. Speaker, mr. President , distinguished members of the honored guests, and fellow citizens today marks my first state of the Union Address to you, a constitutional duty as old as our republic itself. President washington began this tradition in 1790 after reminding the nation that the destiny of selfgovernment and the preservation of the sacred fire of liberty is finally staked on the experiment entrusted to the hands of the American People. For our friends in the press, who place a high premium on accuracy, let me say i did not actually hear George Washington say that. [laughter] but it is a matter of historic record. [laughter] but from this podium, Winston Churchill asked the free world to stand together against the onslaught of aggression. Franklin Delano Roosevelt spoke of a day of infamy and summoned a nation to arms. Douglas macarthur made an unforgettable farewell to a country he loved and served so well. Dwight eisenhower reminded us that peace was purchased only at the price of strength. And john f. Kennedy spoke of the burden and glory that is freedom. When i visited this chamber last year as a newcomer to washington, critical of past policies which i believed had failed, i proposed a new spirit of partnership between this congress and this administration and between washington and our state and local governments. In forging this new partnership for america, we could achieve the oldest hopes of our republic, prosperity for our nation, peace for the world, and the blessings of individual liberty for our children and, someday, for all of humanity. Its my duty to report to you tonight on the progress that we have made in our relations with other nations, on the foundation weve carefully laid for our economic recovery, and finally, on a bold and Spirited Initiative that i believe can change the face of American Government and make it again the servant of the people. Seldom have the stakes been higher for america. What we do and say here will make all the difference to autoworkers in detroit, lumberjacks in the northwest, steelworkers in steubenville who are in the unemployment lines; to black teenagers in newark and chicago; to hardpressed farmers and small businessmen; and to millions of Everyday Americans who harbor the simple wish of a safe and financially secure future for their children. To understand the state of the union, we must look not only at where we are and where were going but where weve been. The situation at this time last year was truly ominous. The last decade has seen a series of recessions. There was a recession in 1970, in 1974, and again in the spring of 1980. Each time, unemployment increased and inflation soon turned up again. We coined the word stagflation to describe this. Governments response to these recessions was to pump up the money supply and increase spending. In the last 6 months of 1980, as an example, the money supply increased at the fastest rate in postwar history, 13 . Inflation remained in double digits, and Government Spending increased at an annual rate of 17 . Interest rates reached a staggering 21. 5 . There were 8 million unemployed. Late in 1981 we sank into the present recession, largely because continued high Interest Rates hurt the Auto Industry and construction. And there was a drop in productivity, and the already high unemployment increased. This time, however, things are different. We have an Economic Program in place, completely different from the artificial quick fixes of the past. It calls for a reduction of the rate of increase in Government Spending, and already that rate has been cut nearly in half. But reduced spending the first and smallest phase of a 3year tax rate reduction designed to stimulate the economy and create jobs. Already Interest Rates are down to 15 3 4 , but they must still go lower. Inflation is down from 12. 4 to 8. 9, and for the month of december it was running at an annualized rate of 5. 2 . If we had not acted as we did, things would be far worse for all americans than they are today. [applause] inflation, taxes, and Interest Rates would all be higher. A year ago, americans faith in their governmental process was steadily declining. Six out of 10 americans were saying they were pessimistic about their future. A new kind of defeatism was heard. Some said our domestic problems were uncontrollable, that we had to learn to live with this seemingly endless cycle of high inflation and high unemployment. There were also pessimistic predictions about the relationship between our administration and this congress. It was said we could never work together. Well, those predictions were wrong. The record is clear, and i believe that history will remember this as an era of american renewal, remember this administration as an administration of change, and remember this congress as a congress of destiny. Together, we not only cut the increase in Government Spending nearly in half, we brought about the largest tax reductions and the most sweeping changes in our tax structure since the beginning of this century. And because we indexed future taxes to the rate of inflation, we took away governments builtin profit on inflation and its hidden incentive to grow larger at the expense of american workers. Together, after 50 years of taking power away from the hands of the people in their states and local communities, we have started returning power and resources to them. Together, we have cut the growth of new federal regulations nearly in half. In 1981 there were 23,000 fewer pages in the federal register, which lists new regulations, than there were in 1980. [applause] by deregulating oil weve come closer to achieving Energy Independence and helped bring down the cost of gasoline and heating fuel. Together, we have created an effective federal strike force to combat waste and fraud in government. In just 6 months it has saved the taxpayers more than 2 billion, and its only getting started. Together weve begun to mobilize the private sector, not to duplicate wasteful and discredited Government Programs, but to bring thousands of americans into a volunteer effort to help solve many of americas social problems. Together weve begun to restore that margin of military safety that ensures peace. Our countrys uniform is being worn once again with pride. Together we have made a new beginning, but we have only begun. No one pretends that the way ahead will be easy. In my inaugural address last year, i warned that the ills we suffer have come upon us over several decades. They will not go away in days, weeks, or months, but they will go away, because we as americans have the capacity now, as weve had it in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom. [applause] the economy will face difficult moments in the months ahead. But the program for economic recovery that is in place will pull the economy out of its slump and put us on the road to prosperity and stable growth by the latter half of this year. And that is why i can report to you tonight that, in the near future, the state of the union and the economy will be better, much better, if we summon the strength to continue on the course that weve charted. And so, the question if the fundamentals are in place, what now . Well, two things. First, we must understand whats happening at the moment to the economy. Our current problems are not the product of the Recovery Program thats only just now getting underway, as some would have you believe. They are the inheritance of decades of tax and tax and spend and spend. Second, because our economic problems are deeply rooted and will not respond to quick political fixes, we must stick to our carefully integrated plan for recovery. That plan is based on four commonsense fundamentals continued reduction of the growth in federal spending; preserving the individual and business tax reductions that will stimulate saving and investment; removing unnecessary federal regulations to spark productivity; and maintaining a healthy dollar and a stable monetary policy, the latter a responsibility of the Federal Reserve system. The only alternative being offered to this Economic Program is a return to the policies that gave us a trilliondollar debt, runaway inflation, runaway Interest Rates and unemployment. The doubters would have us turn back the clock with tax increases that would offset the personal tax rate reductions already passed by this congress. Raise present taxes to cut future deficits, they tell us. Well, i dont believe we should buy that argument. There are too many imponderables for anyone to predict deficits or surpluses several years ahead with any degree of accuracy. The budget in place, when i took office, had been projected as balanced. It turned out to have one of the biggest deficits in history. Another example of the imponderables that can make deficit projections highly questionable, a change of only one age point in unemployment can alter a deficit up or down by some 25 billion. As it now stands, our forecast, which were required by law to make, will show major deficits starting at less than a hundred billion dollars and declining, but still too high. More important, were making progress with the three keys to reducing deficits economic growth, lower Interest Rates, and spending control. The policies we have in place will reduce the deficit steadily, surely, and in time, completely. Higher taxes would not mean lower deficits. If they did, how would we explain that tax revenues more than doubled just since 1976 . Yet in that same 6year period we ran the largest series of deficits in our history. In 1980 tax revenues increased by 54 billion, and in 1980 we had one of our alltime biggest deficits. Raising taxes wont balance the budget. It will encourage more Government Spending and less private investment. Raising taxes will slow economic growth, reduce production, and destroy future jobs, making it more difficult for those without jobs to find them and more likely that those who now have jobs could lose them. So, i will not ask you to try to balance the budget on the backs of the american taxpayers. [applause] i will seek no tax increases this year, and i have no intention of retreating from our basic program of tax relief. [applause] i promise to bring the American People, to bring their tax rates down and to keep them down, to provide them incentives to rebuild our economy, to save, to invest in americas future. I will stand by my word. Tonight, im urging the American People seize these new opportunities to produce, to save, to invest, and together well make this economy a mighty engine of freedom, hope, and prosperity again. [applause] now, the budget deficit this year will exceed our earlier expectations. The recession did that. [laughter] it lowered revenues and increased costs. To some extent, were also victims of our own success. Weve brought inflation down faster than we thought we could, [applause] and in doing this, weve deprived government of those hidden revenues that occur when inflation pushes people into higher income tax brackets. And the continued high Interest Rates last year cost the government about 5 billion more than anticipated. We must cut out more nonessential Government Spending and rout out more waste, and we will continue our efforts to reduce the number of employees in the federal work force by 75,000. The budget plan i submit to you on february 8th will realize major savings by dismantling the departments of energy and education and by eliminating ineffective subsidies for business. Well continue to redirect our resources to our two highest budget priorities, a Strong National defense to keep america free and at peace and a reliable safety net of social programs for those who have contributed and those who are in need. Contrary to some of the wild charges you may have heard, this administration has not and will not turn its back on americas elderly or americas poor. [applause] under the new budget, funding for social Insurance Programs will be more than double the amount spent only 6 years ago. But it would be foolish to pretend that these or any programs cannot be made more efficient and economical. The entitlement programs that make up our safety net for the truly needy have worthy goals and many deserving recipients. We will protect them. But theres only one way to see to it that these programs really help those whom they were designed to help. And that is to bring their spiraling costs under control. Today, we face the absurd situation of a federal budget with threequarters of its expenditures routinely referred to as uncontrollable. And a large part of this goes to entitlement programs. Committee after committee of this congress has heard witness after witness describe many of these programs as poorly administered and rife with waste and fraud. Virtually every american who shops in a local supermarket is aware of the daily abuses that take place in the food stamp program, which has grown by 16,000 in the last 15 years. Another example is medicare and medicaid, programs with worthy goals but whose costs have increased from 11 point 2 billion, to almost 60 billion, more than 5 times as much, in just 10 years. Waste and fraud are serious problems. Back in 1980 federal investigators testified before one of your committees that corruption has permeated virtually every area of the medicare and Medicaid Health care industry. One official said many of the people who are cheating the system were very confident that nothing was going to happen to them. Well, something is going to happen. Not only the taxpayers are defrauded, the people with real dependency on these programs are deprived of what they need, because available resources are going not to the needy, but to the greedy. The time has come to control the uncontrollable. In august we made a start. I signed a bill to reduce the growth of these programs by 44 billion over the next 3 years while at the same time preserving essential services for the truly needy. Shortly you will receive from me a message on further reforms we intend to install, some new, but others long recommended by your own congressional committees. I ask you to help make these savings for the american taxpayer. The savings we propose in entitlement programs will total some 63 billion over 4 years and will, without affecting Social Security go a long way toward bringing federal spending under control. But dont be fooled by those who proclaim that spending cuts will deprive the elderly, the needy, and the helpless. The federal government will still subsidize 95 million meals every day. Thats one out of seven of all the meals served in america. Head start, senior nutrition programs, and Child Welfare programs will not be cut from the levels we proposed last year. More than onehalf billion dollars has been proposed for minority business assistance. And research at the National Institute of health will be increased by over 100 million. While meeting all these needs, we intend to plug unwarranted tax loopholes and strengthen the law which requires all large corporations to pay a minimum tax. Just as bold, just as innovative to make government accountable to the people. Work again. Our citizens feel they have lost control of the most basic decisions made about the essential services of government , such as schools, welfare, roads, and even garbage collection. And theyre right. A maze of interlocking jurisdictions and levels of government confronts average citizens in trying to solve even the simplest of problems. They dont know where to turn for answers, who to hold accountable, who to praise, who to blame, who to vote for or against. The main reason for this is the overpowering growth of federal grantsinaid programs during the past few decades. In 1960, the federal government had 132 categorical grant programs, costing 7 billion. When i took office, there were approximately 500, costing nearly a hundred billion dollars, 13 programs for energy, 36 for pollution control, 66 for social services, 90 for education. And here in the congress, it takes at least 166 committees just to try to keep track of them. You know and i know that neither the president nor the congress can properly oversee this jungle of grantsinaid. Indeed, the growth of these grants has led to the distortion in the vital functions of government. As one democratic governor put it recently the National Government should be worrying about arms control, not potholes. [applause] the growth in these federal programs has, in the words of one intergovernmental commission, made the federal government more pervasive, more intrusive, more unmanageable, more ineffective and costly, and above all, more accountable. Lets solve this problem with a single, bold stroke the return of some 47 billion in federal programs to state and local government, together with the means to finance them and a transition period of nearly 10 years to avoid unnecessary disruption. I will shortly send this congress a message describing this program. I want to emphasize, however, that its full details will have been worked out only after close consultation with congressional, state, and local officials. Starting in fiscal 1984, the federal government will assume full responsibility for the cost of the rapidly growing Medicaid Program to go along with its existing responsibility for medicare. As part of a financially equal