When the bipartisan applause stopped, President Truman said,
"I am happy to report to this 81st Congress that the state of the
Union is good. Our Nation is better able than ever before to meet
the needs of the American people, and to give them their fair chance
in the pursuit of happiness. [It] is foremost among the nations of
the world in the search for peace."
Today, that freshman Member from Michigan stands where Mr. Truman
stood, and I must say to you that the state of the Union is not
Millions of Americans are out of work.
Recession and inflation are eroding the money of millions more.
Prices are too high, and sales are too slow.
This year's Federal deficit will be about $30 billion; next year's
probably $45 billion.
The national debt will rise to over $500 billion.
Our plant capacity and productivity are not increasing fast enough.
We depend on others for essential energy.
Some people question their Government's ability to make hard
decisions and stick with them; they expect Washington politics as
Yet, what President Truman said on January 5, 1949, is even more
true in 1975. We are better able to meet our people's needs. All
Americans do have a fairer chance to pursue happiness. Not only are
we still the foremost nation in the pursuit of peace but today's
prospects of attaining it are infinitely brighter.
There were 59 million Americans employed at the start of 1949; now
there are more than 85 million Americans who have jobs. In
comparable dollars, the average income of the American family has
doubled during the past 26 years.
Now, I want to speak very bluntly. I've got bad news, and I don't
expect much, if any, applause. The American people want action, and
it will take both the Congress and the President to give them what
they want. Progress and solutions can be achieved, and they will be
My message today is not intended to address all of the complex needs
of America. I will send separate messages making specific
recommendations for domestic legislation, such as the extension of
general revenue sharing and the Voting Rights Act.
The moment has come to move in a new direction. We can do this by
fashioning a new partnership between the Congress on the one hand,
the White House on the other, and the people we both represent.
Let us mobilize the most powerful and most creative industrial
nation that ever existed on this Earth to put all our people to
work. The emphasis on our economic efforts must now shift from
inflation to jobs.
To bolster business and industry and to create new jobs, I propose a
1-year tax reduction of $16 billion. Three-quarters would go to
individuals and one-quarter to promote business investment.
This cash rebate to individuals amounts to 12 percent of 1974 tax
payments--a total cut of $12 billion, with a maximum of $1,000 per
I call on the Congress to act by April 1. If you do--and I hope you
will--the Treasury can send the first check for half of the rebate
in May and the second by September.
The other one-fourth of the cut, about $4 billion, will go to
business, including farms, to promote expansion and to create more
jobs. The 1-year reduction for businesses would be in the form of a
liberalized investment tax credit increasing the rate to 12 percent
for all businesses.
This tax cut does not include the more fundamental reforms needed in
our tax system. But it points us in the right direction--allowing
taxpayers rather than the Government to spend their pay.
Cutting taxes now is essential if we are to turn the economy around.
A tax cut offers the best hope of creating more jobs. Unfortunately,
it will increase the size of the budget deficit. Therefore, it is
more important than ever that we take steps to control the growth of
Part of our trouble is that we have been self-indulgent. For
decades, we have been voting ever-increasing levels of Government
benefits, and now the bill has come due. We have been adding so many
new programs that the size and the growth of the Federal budget has
taken on a life of its own.
One characteristic of these programs is that their cost increases
automatically every year because the number of people eligible for
most of the benefits increases every year. When these programs are
enacted, there is no dollar amount set. No one knows what they will
cost. All we know is that whatever they cost last year, they will
cost more next year.
It is a question of simple arithmetic. Unless we check the excessive
growth of Federal expenditures or impose on ourselves matching
increases in taxes, we will continue to run huge inflationary
deficits in the Federal budget.
If we project the current built-in momentum of Federal spending
through the next 15 years, State, Federal, and local government
expenditures could easily comprise half of our gross national
product. This compares with less than a third in 1975.
I have just concluded the process of preparing the budget
submissions for fiscal year 1976. In that budget, I will propose
legislation to restrain the growth of a number of existing programs.
I have also concluded that no new spending programs can be initiated
this year, except for energy. Further, I will not hesitate to veto
any new spending programs adopted by the Congress.
As an additional step toward putting the Federal Government's house
in order, I recommend a 5-percent limit on Federal pay increases in
1975. In all Government programs tied to the Consumer Price
Index--including social security, civil service and military
retirement pay, and food stamps--I also propose a 1-year maximum
increase of 5 percent.
None of these recommended ceiling limitations, over which Congress
has final authority, are easy to propose, because in most cases they
involve anticipated payments to many, many deserving people.
Nonetheless, it must be done. I must emphasize that I am not asking
to eliminate, to reduce, to freeze these payments. I am merely
recommending that we slow down the rate at which these payments
increase and these programs grow.
Only a reduction in the growth of spending can keep Federal
borrowing down and reduce the damage to the private sector from high
interest rates. Only a reduction in spending can make it possible
for the Federal Reserve System to avoid an inflationary growth in
the money supply and thus restore balance to our economy. A major
reduction in the growth of Federal spending can help dispel the
uncertainty that so many feel about our economy and put us on the
way to curing our economic ills.
If we don't act to slow down the rate of increase in Federal
spending, the United States Treasury will be legally obligated to
spend more than $360 billion in fiscal year 1976, even if no new
programs are enacted. These are not matters of conjecture or
prediction, but again, a matter of simple arithmetic. The size of
these numbers and their implications for our everyday life and the
health of our economic system are shocking.
I submitted to the last Congress a list of budget deferrals and
rescissions. There will be more cuts recommended in the budget that
I will submit. Even so, the level of outlays for fiscal year 1976 is
still much, much too high. Not only is it too high for this year but
the decisions we make now will inevitably have a major and growing
impact on expenditure levels in future years. I think this is a very
fundamental issue that we, the Congress and I, must jointly solve.
Economic disruptions we and others are experiencing stem in part
from the fact that the world price of petroleum has quadrupled in
the last year. But in all honesty, we cannot put all of the blame on
the oil-exporting nations. We, the United States, are not blameless.
Our growing dependence upon foreign sources has been adding to our
vulnerability for years and years, and we did nothing to prepare
ourselves for such an event as the embargo of 1973.
During the 1960's, this country had a surplus capacity of crude oil
which we were able to make available to our trading partners
whenever there was a disruption of supply. This surplus capacity
enabled us to influence both supplies and prices of crude oil
throughout the world. Our excess capacity neutralized any effort at
establishing an effective cartel, and thus the rest of the world was
assured of adequate supplies of oil at reasonable prices.
By 1970, our surplus capacity had vanished, and as a consequence,
the latent power of the oil cartel could emerge in full force.
Europe and Japan, both heavily dependent on imported oil, now
struggle to keep their economies in balance. Even the United States,
our country, which is far more self-sufficient than most other
industrial countries, has been put under serious pressure.
I am proposing a program which will begin to restore our country's
surplus capacity in total energy. In this way, we will be able to
assure ourselves reliable and adequate energy and help foster a new
world energy stability for other major consuming nations.
But this Nation and, in fact, the world must face the prospect of
energy difficulties between now and 1985. This program will impose
burdens on all of us with the aim of reducing our consumption of
energy and increasing our production. Great attention has been paid
to the considerations of fairness, and I can assure you that the
burdens will not fall more harshly on those less able to bear them.
I am recommending a plan to make us invulnerable to cutoffs of
foreign oil. It will require sacrifices, but it--and this is most
important--it will work.
I have set the following national energy goals to assure that our
future is as secure and as productive as our past:
First, we must reduce oil imports by 1 million barrels per day by
the end of this year and by 2 million barrels per day by the end of
Second, we must end vulnerability to economic disruption by foreign
suppliers by 1985.
Third, we must develop our energy technology and resources so that
the United States has the ability to supply a significant share of
the energy needs of the free world by the end of this century.
To attain these objectives, we need immediate action to cut imports.
Unfortunately, in the short term there are only a limited number of
actions which can increase domestic supply. I will press for all of
I urge quick action on the necessary legislation to allow commercial
production at the Elk Hills, California, Naval Petroleum Reserve. In
order that we make greater use of domestic coal resources, I am
submitting amendments to the Energy Supply and Environmental
Coordination Act which will greatly increase the number of
powerplants that can be promptly converted to coal.
Obviously, voluntary conservation continues to be essential, but
tougher programs are needed--and needed now. Therefore, I am using
Presidential powers to raise the fee on all imported crude oil and
petroleum products. The crude oil fee level will be increased $1 per
barrel on February 1, by $2 per barrel on March 1, and by $3 per
barrel on April 1. I will take actions to reduce undue hardships on
any geographical region. To that end, I am requesting the Congress
to act within 90 days on a more comprehensive energy tax program. It
includes: excise taxes and import fees totaling $2 per barrel on
product imports and on all crude oil; deregulation of new natural
gas and enactment of a natural gas excise tax.
I plan to take Presidential initiative to decontrol the price of
domestic crude oil on April 1. I urge the Congress to enact a
windfall profits tax by that date to ensure that oil producers do
not profit unduly.
The sooner Congress acts, the more effective the oil conservation
program will be and the quicker the Federal revenues can be returned
to our people.
I am prepared to use Presidential authority to limit imports, as
necessary, to guarantee success.
I want you to know that before deciding on my energy conservation
program, I considered rationing and higher gasoline taxes as
alternatives. In my judgment, neither would achieve the desired
results and both would produce unacceptable inequities.
A massive program must be initiated to increase energy supply to cut
demand, and provide new standby emergency programs to achieve the
independence we want by 1985. The largest part of increased oil
production must come from new frontier areas on the Outer
Continental Shelf and from the Naval Petroleum Reserve No. 4 in
Alaska. It is the intent of this Administration to move ahead with
exploration, leasing, and production on those frontier areas of the
Outer Continental Shelf where the environmental risks are
Use of our most abundant domestic resource--coal--is severely
limited. We must strike a reasonable compromise on environmental
concerns with coal. I am submitting Clean Air [Act] amendments which
will allow greater coal use without sacrificing clean air goals.
I vetoed the strip mining legislation passed by the last Congress.
With appropriate changes, I will sign a revised version when it
comes to the White House.
I am proposing a number of actions to energize our nuclear power
program. I will submit legislation to expedite nuclear leasing
[licensing] and the rapid selection of sites.
In recent months, utilities have cancelled or postponed over 60
percent of planned nuclear expansion and 30 percent of planned
additions to non-nuclear capacity. Financing problems for that
industry are worsening. I am therefore recommending that the 1-year
investment tax credit of 12 percent be extended an additional 2
years to specifically speed the construction of powerplants that do
not use natural gas or oil. I am also submitting proposals for
selective reform of State utility commission regulations.
To provide the critical stability for our domestic energy production
in the face of world price uncertainty, I will request legislation
to authorize and require tariffs, import quotas, or price floors to
protect our energy prices at levels which will achieve energy
Increasing energy supplies is not enough. We must take additional
steps to cut long-term consumption. I therefore propose to the
Congress: legislation to make thermal efficiency standards mandatory
for all new buildings in the United States; a new tax credit of up
to $150 for those homeowners who install insulation equipment; the
establishment of an energy conservation program to help low-income
families purchase insulation supplies; legislation to modify and
defer automotive pollution standards for 5 years, which will enable
us to improve automobile gas mileage by 40 percent by 1980.
These proposals and actions, cumulatively, can reduce our dependence
on foreign energy supplies from 3 to 5 million barrels per day by
1985. To make the United States invulnerable to foreign disruption,
I propose standby emergency legislation and a strategic storage
program of 1 billion barrels of oil for domestic needs and 300
million barrels for national defense purposes.
I will ask for the funds needed for energy research and development
activities. I have established a goal of 1 million barrels of
synthetic fuels and shale oil production per day by 1985 together
with an incentive program to achieve it.
I have a very deep belief in America's capabilities. Within the next
10 years, my program envisions: 200 major nuclear powerplants; 250
major new coal mines; 150 major coal-fired powerplants; 30 major new
[oil] refineries; 20 major new synthetic fuel plants; the drilling
of many thousands of new oil wells; the insulation of 18 million
homes; and the manufacturing and the sale of millions of new
automobiles, trucks, and buses that use much less fuel.
I happen to believe that we can do it. In another crisis--the one in
1942--President Franklin D. Roosevelt said this country would build
60,000 [50,000] military aircraft. By 1943, production in that
program had reached 125,000 aircraft annually. They did it then. We
can do it now.
If the Congress and the American people will work with me to attain
these targets, they will be achieved and will be surpassed.
From adversity, let us seize opportunity. Revenues of some $30
billion from higher energy taxes designed to encourage conservation
must be refunded to the American people in a manner which corrects
distortions in our tax system wrought by inflation.
People have been pushed into higher tax brackets by inflation, with
consequent reduction in their actual spending power. Business taxes
are similarly distorted because inflation exaggerates reported
profits, resulting in excessive taxes.
Accordingly, I propose that future individual income taxes be
reduced by $16.5 billion. This will be done by raising the
low-income allowance and reducing tax rates. This continuing tax cut
will primarily benefit lower- and middle-income taxpayers.
For example, a typical family of four with a gross income of $5,600
now pays $185 in Federal income taxes. Under this tax cut plan, they
would pay nothing. A family of four with a gross income of $12,500
now pays $1,260 in Federal taxes. My proposal reduces that total by
$300. Families grossing $20,000 would receive a reduction of $210.
Those with the very lowest incomes, who can least afford higher
costs, must also be compensated. I propose a payment of $80 to every
person 18 years of age and older in that very limited category.
State and local governments will receive $2 billion in additional
revenue sharing to offset their increased energy costs.
To offset inflationary distortions and to generate more economic
activity, the corporate tax rate will be reduced from 48 percent to
Now let me turn, if I might, to the international dimension of the
present crisis. At no time in our peacetime history has the state of
the Nation depended more heavily on the state of the world. And
seldom, if ever, has the state of the world depended more heavily on
the state of our Nation.
The economic distress is global. We will not solve it at home unless
we help to remedy the profound economic dislocation abroad. World
trade and monetary structure provides markets, energy, food, and
vital raw materials--for all nations. This international system is
now in jeopardy.
This Nation can be proud of significant achievements in recent years
in solving problems and crises. The Berlin agreement, the SALT
agreements, our new relationship with China, the unprecedented
efforts in the Middle East are immensely encouraging. But the world
is not free from crisis. In a world of 150 nations, where nuclear
technology is proliferating and regional conflicts continue,
international security cannot be taken for granted.
So, let there be no mistake about it: International cooperation is a
vital factor of our lives today. This is not a moment for the
American people to turn inward. More than ever before, our own
well-being depends on America's determination and America's
leadership in the whole wide world.
We are a great Nation--spiritually, politically, militarily,
diplomatically, and economically. America's commitment to
international security has sustained the safety of allies and
friends in many areas-- in the Middle East, in Europe, and in Asia.
Our turning away would unleash new instabilities, new dangers around
the globe, which, in turn, would threaten our own security.
At the end of World War II, we turned a similar challenge into an
historic opportunity and, I might add, an historic achievement. An
old order was in disarray; political and economic institutions were
shattered. In that period, this Nation and its partners built new
institutions, new mechanisms of mutual support and cooperation.
Today, as then, we face an historic opportunity. If we act
imaginatively and boldly, as we acted then, this period will in
retrospect be seen as one of the great creative moments of our
The whole world is watching to see how we respond.
A resurgent American economy would do more to restore the confidence
of the world in its own future than anything else we can do. The
program that this Congress passes can demonstrate to the world that
we have started to put our own house in order. If we can show that
this Nation is able and willing to help other nations meet the
common challenge, it can demonstrate that the United States will
fulfill its responsibilities as a leader among nations.
Quite frankly, at stake is the future of industrialized democracies,
which have perceived their destiny in common and sustained it in
common for 30 years.
The developing nations are also at a turning point. The poorest
nations see their hopes of feeding their hungry and developing their
societies shattered by the economic crisis. The long-term economic
future for the producers of raw materials also depends on
Our relations with the Communist countries are a basic factor of the
world environment. We must seek to build a long-term basis for
coexistence. We will stand by our principles. We will stand by our
interests. We will act firmly when challenged. The kind of a world
we want depends on a broad policy of creating mutual incentives for
restraint and for cooperation.
As we move forward to meet our global challenges and opportunities,
we must have the tools to do the job.
Our military forces are strong and ready. This military strength
deters aggression against our allies, stabilizes our relations with
former adversaries, and protects our homeland. Fully adequate
conventional and strategic forces cost many, many billions, but
these dollars are sound insurance for our safety and for a more
Military strength alone is not sufficient. Effective diplomacy is
also essential in preventing conflict, in building world
understanding. The Vladivostok negotiations with the Soviet Union
represent a major step in moderating strategic arms competition. My
recent discussions with the leaders of the Atlantic community,
Japan, and South Korea have contributed to meeting the common
But we have serious problems before us that require cooperation
between the President and the Congress. By the Constitution and
tradition, the execution of foreign policy is the responsibility of
In recent years, under the stress of the Vietnam war, legislative
restrictions on the President's ability to execute foreign policy
and military decisions have proliferated. As a Member of the
Congress, I opposed some and I approved others. As President, I
welcome the advice and cooperation of the House and the Senate.
But if our foreign policy is to be successful, we cannot rigidly
restrict in legislation the ability of the President to act. The
conduct of negotiations is ill-suited to such limitations.
Legislative restrictions, intended for the best motives and
purposes, can have the opposite result, as we have seen most
recently in our trade relations with the Soviet Union.
For my part, I pledge this Administration will act in the closest
consultation with the Congress as we face delicate situations and
troubled times throughout the globe.
When I became President only 5 months ago, I promised the last
Congress a policy of communication, conciliation, compromise, and
cooperation. I renew that pledge to the new Members of this
Let me sum it up. America needs a new direction, which I have sought
to chart here today--a change of course which will: put the
unemployed back to work; increase real income and production;
restrain the growth of Federal Government spending; achieve energy
independence; and advance the cause of world understanding.
We have the ability. We have the know-how. In partnership with the
American people, we will achieve these objectives.
As our 200th anniversary approaches, we owe it to ourselves and to
posterity to rebuild our political and economic strength. Let us
make America once again and for centuries more to come what it has
so long been--a stronghold and a beacon-light of liberty for the