Annual Budget Message to the Congress, Fiscal Year 1975.

To the Congress of the United States:

The Federal budget must be both a consistent statement of our national objectives and a responsible plan for achieving them. The budget that I propose for fiscal year 1975 meets these standards. It places special emphasis on:

--the proper fiscal balance to keep the economy on the track to sustained high employment and more stable prices;

--a strong defense force in support of our efforts to build an enduring structure of peace in the world;

--a comprehensive energy program to deal with current shortages and to reestablish our ability to be self-sufficient in energy;

--the New Federalism philosophy of strengthening the role of State and local governments, and of the individual citizen;

--basic reforms of major domestic programs; and

--efficient management of the Federal Government in the years ahead, through a more intensive focus on the tangible results that programs achieve.

In the face of economic uncertainty, my budget recommendations provide for a fiscal policy that would support high employment while restraining inflation. It would maintain the flexibility to take further action, if needed, to offset the effects of energy shortages. My budget recommendations hold the rise of Federal spending to the minimum increases necessary.

The budget recommends total outlays of $304.4 billion in 1975, $29.8 billion more than in 1974, and anticipates receipts of $295 billion, a $25 billion increase over 1974. About 90% of the increase in outlays between 1974 and 1975 represents mandatory spending increases that are unavoidable under current law.

Under conditions of full employment-conventionally defined as a 4% unemployment rate--Federal receipts would be substantially higher and outlays somewhat lower than these figures. Thus, on a full employment basis the budget shows a surplus of $4 billion in 1974 increasing to $8 billion in 1975.

The budget proposes increases for defense activities so that we can increase our defense preparedness and preserve present force levels in the face of rising costs. These proposals reflect minimum prudent levels of defense spending consistent with maintaining adequate armed forces to assure our national security.

The budget includes my program, Project Independence, to reestablish our capability for self-sufficiency in energy. I plan Federal funding of $10 billion for the accelerated energy research and development component of this program over the next 5 years. Other measures already underway or proposed will help reduce low-priority energy use and minimize economic dislocations due to shortages. Our vigorous diplomatic efforts to restore an acceptable pattern of world trade in petroleum will complement these measures.

THE BUDGET AT A GLANCE

In billions of dollars]

1973 1974 1975

Item actual estimate estimate

Receipts 232. 2 270. 0 295. 0

Outlays 246. 5 274. 7 304. 4

Deficit(--) --14. 3 --4. 7 --9. 4

The budget carries forward the New Federalism philosophy. This philosophy stresses the need to recognize the different roles appropriate to each level of government, and to the private sector--thereby strengthening individual choice and self-reliance in America. The New Federalism calls for Federal support in meeting national problems and holds that State and local authorities are best able to make decisions on local and statewide needs in accordance with local conditions and community aspirations. Federal aid in the areas of law enforcement, manpower, and rural development incorporate the principles of the New Federalism. I now propose to apply this philosophy in major reforms of Federal assistance for health, education, community development, and transportation.

Our welfare system is inefficient and inequitable. I urge the Congress to work with my Administration in developing a new system that is simple, fair, and compassionate.

I am once again proposing a comprehensive plan for national health insurance that would make adequate insurance against the costs of health care available to all Americans. This far-reaching reform is long overdue. I urge early congressional action on it. The budget proposes measures to prepare for this program.

Federal taxes impose a large burden on the Nation. Each Federal program, therefore, must be managed as efficiently as possible and each must be subject to continuous scrutiny as to how well it meets today's highest priority needs. This budget supports the major management initiatives I have undertaken to ensure that Federal programs produce results that truly satisfy the needs of the American people--and do so at the lowest possible cost to the taxpayer.

The end of American combat involvement in the Vietnam war and the reduction of cold war tensions in recent years have contributed to a significant shift in the composition of the Federal budget. Defense outlays remained virtually constant from 1968 to 1974, despite substantial cost increases and the pay raises which have accompanied the transition to an all-volunteer armed force. These added costs were offset by large savings resulting from reductions in men and materiel. Defense costs have been a decreasing share of our national budget, falling from 44% of Federal spending in 1969 to an estimated 19% in 1975.

Conversely, Federal nondefense spending has increased from 56% of Federal spending in 1969 to 71 % in this budget. In the process, the form that Federal spending takes has shifted dramatically away from support for direct Federal operations and toward benefit payments to individuals and grants to State and local governments.

When I took office as President in 1969, defense outlays were nearly one-fifth more than combined outlays for aid to individuals under human resource programs and for aid to State and local governments. While our defenses are being maintained and strengthened, this budget proposes spending nearly twice as much money for aid to individuals and to State and local governments as for defense. This dramatic shift in Federal spending both reflects and supports the New Federalism.

THE BUDGET AND THE ECONOMY

During the past year, our economy operated at close to full capacity. In fact, the Nation's capacity for producing basic materials was used at a higher rate than in any previous year since World War II. New jobs were created for about 2 3/4 million people. Unemployment fell from a 5.4% average rate in the second half of calendar year 1972 to a 4.7% rate in the second half of 1973. At the same time, adverse weather and other conditions cut into the world's food supplies, including ours, while the policies of exporting countries cut supplies of oil and raised its price sharply.

These developments created a severe inflation during calendar year 1973, particularly in prices of food and energy. Our budget policy has been a key element in the effort to control that inflation. Strict limitation of expenditures in 1973 applied fiscal restraint to an economy that was expanding at an unsustainable rate. The budget totals recommended here continue a policy of fiscal responsibility as part of a continuing anti-inflation program.

There is now evidence that the economy is slowing down. In part this is due to the energy shortage, which limits our ability to produce some products and reduces demand for others. Our energy-use policies are designed to minimize the adverse impact of the energy shortage on the economy, but some effect is inescapable.

Some slowdown in the growth of demand is appropriate to help check inflation. This is especially true in view of supply limitations. But this slowdown should not be permitted to go too far. Therefore, I propose a budget which will continue a posture of moderate restraint rather than greatly intensifying that restraint. Also, my Administration is developing and will be prepared to use a range of measures to support the economy if that should be necessary--measures tailored to the special conditions of the energy shortage. Along these lines, the Congress should enact the proposals I made last year to improve our regular unemployment insurance system by establishing higher minimum benefit standards and extending coverage to farm workers.

THE BUDGET TOTALS

[Fiscal years. In billions]

1973 1974 1975

Description actual estimate estimate

Budget receipts 232. 2 270.0 195. 0

Budget outlays 246. 5 274. 7 304. 4

Deficit(--) --14.3 --4.7 --9.4

Budget authority 276.7 310. 9 322. 1

1972 Outstanding debt, end of year: actual Gross Federal deb 437.3 468.4 486.4 508. 0 Debt held by the public 323.8 343.0 346.5 359. 0 Outstanding Federal and federally assisted credit, end of year: Direct loans 50.1 43.9 45.9 48.2 Guaranteed and insured loans1 133.7 147.7 159.7 170. 7 Government-sponsored agency loans2 48.9 67.2 83.3 86. 8

¹ Excludes loans held by Government accounts and special credit agencies.

² See table E-7 in Special Analysis E, Federal Credit Programs, published in a separate volume.

Under conditions of full employment the budget outlays I propose would be less than the receipts from present and proposed taxes by about $4 billion in 1974 and $8 billion in 1975. A 4% rate of unemployment is used as a measure of full employment in calculating these surpluses. These surpluses, following a small full-employment deficit in 1973, and rising somewhat from 1974 to 1975, are consistent with our objective of moderate restraint.

In large part, the estimated increase in the full-employment surplus is the result of the high inflation rate experienced in calendar year 1973 and expected to continue for the first half of 1974. In the short run, inflation increases receipts more than it increases outlays. Thus, it increases for a time the surplus that would be achieved at high employment. This means that the budget has the effect of restraining inflation. The rising full-employment surpluses estimated here are largely the product of an inflation that is proceeding too rapidly. To use the size of these surpluses as an invitation or an excuse for more spending would only make the inflation rate worse.

A 4% unemployment rate is used in calculating full-employment receipts and outlays as a conventional standard which approximately removes the effects on the budget estimates of year-to-year changes in the level of economic activity. To serve this purpose the unemployment rate used for the calculations must be reasonably stable from year to year. However, this does not mean that the feasible and proper target for unemployment is always represented by the same figure. In fact, as a result of changes in the composition of the labor force, a 4% overall unemployment rate today would mean much tighter conditions in labor markets than would have been true ten or twenty years ago.

The estimates of receipts in this budget include the windfall profits tax on oil producers which I have proposed. This tax would recapture the excess profits that these producers would otherwise realize due to rising oil prices.

I continue to urge action on the tax reform and simplification proposals that were discussed with Congress last year. These proposals would not appreciably affect the overall tax burden on the economy; they would simply distribute it more equitably.

THE FULL EMPLOYMENT BUDGET

[Fiscal years. In billions]

1973 1974 1975 1976

Description actual estimate estimate projection

Full-employment receipts 243 278 311 339

Full-employment outlays ¹ 245 274 303 329

Full-employment surplus or deficit (--) -- 2 4 8 10

1 In these estimates, outlays for unemployment insurance benefits and the Emergency Employment Act program are calculated as they would be at an unemployment rate of only 4%.

Our ability to carry out sound fiscal policy and to provide the resources needed to meet emerging problems is limited by decisions made in the past. The portion of the budget subject to discretionary control has shrunk in recent years primarily because of the relative decline in controllable defense spending, the growth in mandatory grants to State and local governments, and the growth in human resource programs (which largely take the form of benefit payments, set by law, to individuals and families). In 1975, over $223 billion in outlays, or nearly three-quarters of the budget, will be virtually uncontrollable in the short run due to existing law and prior-year commitments. This represents a substantial decline in the controllability of the budget since 1967, when only 59% of outlays were uncontrollable.

Just as each budget is heavily influenced by commitments embodied in those that have preceded it, so each, in turn, strongly influences those that follow. Therefore, the future impact of current decisions must be taken into account by projecting future available resources and the known claims against these resources. This is why the 1975 budget presents detailed projections of its 1976 spending implications; this is also the reason that all five budgets submitted by my Administration have contained 5-year projections of full employment outlays and receipts.

The costs of existing programs and of the new programs I have proposed will rise over time in response to growth in the number of eligible beneficiaries for programs such as social security and other entitlement programs, and in response to price increases. The rise in outlays for existing and currently proposed programs, however, will be less rapid than the rise in tax receipts. Thus, by 1979, receipts are projected to reach about $428 billion on a full-employment basis, while outlays for existing and proposed programs will be $391 billion. This leaves a budget margin--a margin which can be used for tax reduction, new initiatives, or retirement of public debt---of about $37 billion for 1979. This compares with a margin of $10 billion projected for 1976. The 1979 margin is a relatively small one--less than 9% of the projected 1979 receipts--to cover the exigencies of the next 5 years. But it is indicative of longer-term fiscal health if proper fiscal discipline is exercised.

TOWARD A LASTING WORLD PEACE

The overriding goal of American foreign policy is to build a lasting world peace, a peace resting on the solid foundation of mutual respect among all nations.

We have made great progress toward this objective during the past few years. During this Administration we have:

--ended American combat involvement in the war in Vietnam;

--ended the draft;

--established more cooperative relations with the Soviet Union;

--developed promising new relationships with the People's Republic of China;

--concluded an initial strategic arms limitation treaty with the Soviet Union; and

--provided diplomatic leadership toward a Middle East peace settlement.

Building sound foundations for a durable peace requires patient and skillful diplomacy. To be effective, statesmanship must be backed by credible military strength. The 1975 budget provides for the defense forces essential 'to protect our national security and to maintain the credibility and effectiveness of our diplomatic efforts to preserve world peace.

Increases in spending for military functions are necessary for both 1974 and 1975. Outlays of $85.8 billion are proposed for 1975, compared to $79.5 billion for 1974. These figures include the outlay impacts of proposed supplemental appropriations. These increases are required to improve the readiness of our armed forces, to build up levels of essential equipment and supplies, and to meet today's higher costs of maintaining force levels. They would also provide for a vigorous research and development effort that would enable us to produce new weapon systems if they are needed to maintain the strategic balance.

Because of the urgency I attach to a strong defense effort, I am recommending supplemental appropriations for 1974. An increase of $2.8 billion in budget authority is proposed to improve combat readiness and modernize forces, 'to augment munitions stock levels in accordance with lessons learned in the Middle East war, and to meet higher fuel costs.

The increases proposed for defense should be viewed in the context of the substantial--but prudent--reduction in our defense forces that has taken place since I took office. This reduction has resulted primarily from our success in bringing about a general easing of world tensions, in achieving mutual arms limitations, and in improving weapons systems and military efficiency. We have 36% fewer men under arms today than we had in 1968. In constant dollar terms, we will spend substantially less for defense in 1975 than we did in 1964, before the Vietnam buildup began.

The dollar costs of defense manpower are much higher with an all-volunteer armed force than they were under the draft. The Nation is now paying the full real costs of its defense in dollar terms; we no longer "tax" the young by commanding their services at less than their market value. I hope that we will never again need a draft.

Strengthening international economic cooperation is essential to our quest for peace. Expansion of peaceful trade relationships helps bind together the peoples of the world. We have already made considerable progress 'toward international monetary reform, progress which has helped bring about dramatic improvement in our balance of payments. The Trade Reform Act, now before the Congress, would authorize U.S. participation in a new round of international discussions to reduce trade barriers. Failure to enact • this measure in a responsible form could result in a wave of trade protectionism that would undermine the economic well-being of all nations. I urge the Congress to approve it.

This budget provides for the continuation of our foreign assistance programs to strengthen the economies of developing nations, to provide humanitarian assistance and disaster relief, and to help friendly nations provide for their own defense.

MEETING THE NATION'S NEEDS FOR ENERGY AND BASIC RESOURCES

Until recent years, this country was largely self-sufficient in energy production. The rapidly growing demands of our households and industries for more and more energy, however, have now outstripped available low-cost domestic supplies. During the past few years we have become dangerously dependent on imported petroleum, which until recently was low in price. Development of relatively high-cost domestic sources has lagged.

Three years ago, in the first energy message delivered to the Congress by any President, I warned that the long era of abundant low-cost supplies of energy was drawing to a close. I proposed an expanded program to produce greater supplies of clean energy. Last April, in my second energy message, I warned that if existing trends continued unchecked, the Nation would face a serious energy problem; I proposed legislative action to meet this challenge. Since then, I have repeated my previous warnings and proposed urgent measures to restore our capability for energy self-sufficiency. The interruption of oil exports by Arab countries following the Middle East war last October has aggravated the energy problem and underscored sharply the need for this country to regain its ability to be self-sufficient in energy. I have taken all responsible actions I can within my existing authority to meet this challenge.

The 1975 budget reflects a comprehensive national energy policy to deal with current shortages and provides funds to initiate the Federal portion of Project Independence, an accelerated private and governmental effort to reestablish our capability for self-sufficiency in energy by 1980. I anticipate that the research and development component of this program will require about $10 billion in Government funds during its first 5 years; greater amounts may be needed thereafter. These funds will complement an even larger research and development investment in the private sector, which I will continue to encourage.

Higher prices will be necessary to stimulate development of adequate supplies of fuel through the mechanism of the free market. To assure that this will not result in excess profits for oil producers, I have proposed an emergency windfall profits tax on these producers.

Other elements of my comprehensive national energy policy include: --reorganization of Federal administrative machinery to deal more effectively with short- and long-term energy needs;

--stringent energy conservation measures and mandatory allocation of petroleum products as long as shortages persist;

--mandatory reporting of oil production, inventories, reserves, and costs;

--modernization of regulations for railroads in order to permit energy savings and other economies;

--policies to accelerate development of domestic oil and gas reserves, including removal of ceilings on wellhead prices for new natural gas, production from the Elk Hills, Calif., Naval Petroleum Reserve, and development by private industry of western oil shale and of off-shore oil and gas deposits;

--measures to permit increased use of our vast coal reserves, including environmental safeguards for surface mining, conversion of oil-fired electric power plants to coal, improvement of mining techniques, and accelerated efforts to develop technology for coal gasification, coal liquefaction, advanced combustion systems, and pollution control;

--development of fast breeder nuclear reactors, which will greatly increase the amount of energy recoverable from our nuclear fuel resources;

--more timely approval of sites for energy facilities and accelerated construction of nuclear power plants; and

--increased research on advanced energy sources, including fusion power, and geothermal and solar energy.

The budget provides for $1.5 billion in outlays for direct energy research and development programs in 1975, compared to $942 million in 1974. An additional $128 million in outlays is provided in 1975 for complementary basic research and for environmental and health effects research. I will submit additional details on this accelerated effort to the Congress shortly.

The Federal Government alone cannot overcome the energy crisis. Project Independence will require a maximum effort by private industry as well. The measures proposed in this budget provide the essential governmental leadership to get this joint public and private program underway. In addition, every American household and every American business must economize on energy usage if we are to share temporary shortages equitably, as we must, and reestablish our energy independence in the long run.

The energy crisis has brought to the fore the need for a realistic balancing of the demands of economic growth and the demands of environmental protection. Shortages of "clean" fuels will mean that some temporary variances from air quality plans will be necessary to meet high priority energy needs. The progress we have made in pollution control in recent years, however, along with reductions in energy consumption, should insure that overall air quality will continue to improve.

The adverse impact of energy shortages on the economy could be aggravated by shortages of other raw materials. A comprehensive study on supplies of metal ores and other basic resources and our needs for them is now underway. This study will help insure that our policies properly anticipate potential problems.

We must also do everything we can to avoid a shortage of agricultural commodities such as we experienced last year. For many years this country enjoyed abundant agricultural production. This abundance not only met domestic needs, but aided greatly in alleviating hunger and malnutrition abroad. In 1972, however, adverse conditions throughout much of the world created widespread agricultural shortages. Food costs began to spiral, both here and abroad.

My Administration made a number of important program changes in 1973 to bring more farm land into production and to increase farm output. These steps, combined with favorable weather conditions, made 1973 a record crop year; farm income reached an all-time high level. Agricultural income now depends more upon the private market, and less upon the Government, than has been the case for over 3 decades. In 1973, direct Government payments to farmers experienced their largest dollar decline in history.

HELPING PEOPLE THROUGH STATE AND

LOCAL GOVERNMENTS

Ours is a federal system of government. Our Constitution, now nearly two centuries old, provides for a logical division of responsibilities among:

--a strong national government, concerned with essential national needs;

--State and local governments close to, and responsive to, the needs of individuals and local communities; and

--private citizens endowed with civil liberties that are secure from governmental encroachment.

During the first century and a half of our national experience, State and local governments were able to meet community and State needs from their own revenue sources. They were financially independent of the Federal Government. During the past 40 years, however, the needs of State and local governments have outstripped their resources. The Federal Government has therefore come to play a larger and larger role in financing their day-to-day operations. In the 4 years between 1969 and 1973, Federal grants to States and localities doubled. In 1973 this financial aid, disbursed through literally hundreds of separate programs, provided more than 20% of total State and local revenues.

Unfortunately, these Federal programs have all too often been accompanied by regulations and restrictions which have stifled innovation and initiative on the part of State and local officials, severely limiting the ability of those officials most familiar with problems at the local level to respond to local needs.

In response to this problem I have applied a philosophy of government that has come to be known as the New Federalism. It calls for each level of government to focus its attention on the functions most appropriate to that level. By strengthening the resources and responsibilities of State and local governments, it permits their policies and programs to reflect local needs more sensitively.

Broader sharing of Federal revenues with State and local governments is helping to make this philosophy a reality. Under the General Revenue Sharing program, now in its second year, State and local governments receive over $6 billion a year for use in meeting State and local needs as they see them.

This Administration has also sought to substitute broad-based formula grants for narrow categorical grant programs, giving State and local governments significant discretion as to how funds are used and insuring that Federal aid is more equitably distributed among recipients. These principles now apply to several major areas of Federal assistance.

The Law Enforcement Assistance program has demonstrated the feasibility of broad-based formula grants. Aid under this program is being increased from $28 million in 1969 to $747 million in 1975 and is helping to make the streets of America safer.

The Comprehensive Employment and Training Act which I signed in December extends these same grant principles to manpower programs. Under this Act, the Federal Government will no longer specify the types, methods, and proportions of various manpower services to be provided. Instead, State and local governments will be able 'to use the funds allocated to them to provide the mix of services which they decide best meets the needs of their areas. The budget provides for $2 billion in outlays for this program in 1975.

New authorities under the Rural Development Act are being implemented this year in a manner which is supportive of State and local development plans and priorities.

I urge congressional action to achieve similar reform in additional areas this year:

The principles embodied in the Education Grants Consolidation and Reform I proposed last year deserve priority attention. State and local education agencies should have greater freedom to direct Federal assistance toward meeting what they view as 'high priority local needs. I will continue to work with the Congress, therefore, on legislation to consolidate and improve education grant programs.

The Better Communities Act would replace several ineffective grant and loan programs with a more streamlined approach to the problems of urban areas. This act would allow localities to decide for themselves how to allocate community development funds. The budget proposes funding for this program of $2.3 billion in 1975.

The Unified Transportation Assistance Program I am proposing this year would provide $2.3 billion in highway and mass transit funds, and permit States and localities to allocate these grant funds flexibly, in accordance with local conditions and priorities. Since transportation is a major consumer of energy and is strongly affected by the energy crisis, high priority must be given to enabling States and localities to make decisions on transportation systems based on their assessment of economy, energy conservation, environmental impact, and safety considerations.

I am proposing legislation for a new Economic Adjustment Assistance program. This legislation would permit States and communities to respond flexibly to problems of economic change and unemployment.

Another central feature of the New Federalism is strengthening the ability of State and local governments to perform effectively. The Responsive Governments Act would broaden Federal assistance available for improving State and local planning, decisionmaking, and management capabilities.

I urge the earliest possible enactment of all these measures.

In parallel with these legislative initiatives, my Administration is continuing its efforts to consolidate and streamline categorical grant programs, to simplify complex and burdensome procedures, and to remove unnecessary, inflexible program restrictions.

As part of this same effort, Federal programs are being decentralized along uniform regional lines, and the Federal Regional Councils are being strengthened to facilitate coordination of Federal with State and local activities at the operating level.

The budget accelerates our programs for aiding State and local governments in improving water quality. The Environmental Protection Agency 'has allotted $4 billion to the States for 1975 to make grants for municipal sewage treatment plants, a $1 billion increase over the allotment for 1974. Priorities for grants within these allotments will be determined by the States. A total of $6.9 billion was made available for this program in 1973 and 1974, more than twice the amount made available in the preceding 2 years.

STRENGTHENING THE ROLE OF THE

INDIVIDUAL

Abraham Lincoln believed that:

"The legitimate object of Government is to do for a community of people whatever they need to have done, but cannot do at all, or cannot do so well, for themselves in their separate and individual capacities. In all that the people can individually do as well for themselves, government ought not to interfere."

I share this belief. This philosophy under. lies the efforts of my Administration to strengthen the role of the individual in American society. It is a cornerstone of the New Federalism.

I believe that government policy should seek to maintain an economic environment in which all who are able to work can find employment and adequate earnings. For those unable to support themselves, government should help to provide the means necessary to meet personal and family needs, while preserving individual dignity and self-respect.

My Administration has consistently endeavored to strengthen the role of the individual in American society and to ensure that all Americans enjoy equality of opportunity in education, in employment, in business, and in housing. We have consistently worked to improve assistance for the retired, the disabled, and the unemployed.

Reflecting these concerns, Federal human resource programs have grown dramatically. Between 1969 and 1975, outlays for these programs will have increased by 39%, while outlays for all other programs will have risen only 26%.

The national health insurance plan I am proposing represents another major step toward improving the lives of individual Americans. My proposal calls for basic reform in the financing of medical care. It would bring comprehensive insurance protection against medical expenses within reach of all Americans, including millions of people who cannot now obtain adequate insurance coverage. Costs of coverage for low-income families would be federally supported, with payments scaled according to family income.

It will take several years for this reform to become fully operational. In the interim, the 1975 budget provides $26.3 billion for existing health programs. Under this budget, the momentum of cancer, heart, and other research initiatives would be sustained, and total funding for biomedical research would exceed $2 billion in 1975, almost double the 1969 level. To support continued reform of our medical care system, the budget proposes a total of $125 million in 1974 and 1975 to demonstrate health maintenance organization concepts throughout the Nation. I am also proposing a Health Resources Planning Act to enhance State and regional capabilities and responsibilities for planning and regulating health services.

The rapid growth of human resource programs in recent years has brought about many improvements in the well-being of the American people. Higher social security benefits and extension of the Medicare program, for example, have increased the economic security of the elderly and the disabled. Cash benefits under social security programs will rise from $26.2 billion in 1969 to $62.9 billion in 1975. They now reach 29 million beneficiaries. Five social security benefit increases have been enacted since 1969. Taken together, these increases total nearly 70%, far exceeding the increases in the cost of living, and in average wages, over this period. I continue to urge enactment of legislation to reform private pension plans, legislation which would further strengthen the economic security of millions of Americans in their retirement years.

The Supplemental Security Income program began operation on January 1, 1974, replacing the various State public assistance programs for the aged, the blind, and the disabled with a more uniform and equitable national system. This broad reform provides higher benefits for these disadvantaged groups. In addition, Federal assumption of responsibility for these programs will provide substantial fiscal relief to State and local governments.

Also during the past month, food stamp benefits have been increased by over 20%, and the program has been extended to those parts of the country where it was not available before. Outlays for food stamps will be $3.9 billion in 1975, 78% higher than the 1973 level.

I propose further measures to improve the income security of Americans, including:

--reform of pensions for veterans and their dependents, with provisions for automatic cost-of-living adjustments in benefits, and better matching of pensions to family need;

--an increase in education benefits for veterans to help meet cost increases since these benefits were last raised;

--automatic cost-of-living increases for the aged, blind, and disabled beneficiaries of the Supplemental Security Income program;

--transfer of food stamps and related nutrition programs to the Department of Health, Education, and Welfare, to improve coordination of income maintenance programs; and

--continued priority efforts to develop a practical program of direct cash assistance for housing.

One of the major unfinished pieces of business of my Administration is the replacement of the current welfare system with a new system that works. Figures collected over the past year are grim testimony to the fact that our current welfare system is a mess; these figures show that fully 40% of the payments made are incorrect. I intend to make new proposals to solve this continuing problem.

As we begin this effort, I hope that the debate can focus on the substance of the issues, not on superficial labels. I believe that the majority of the American people agree on the principles that should guide Federal income assistance:

--the system should provide strong work incentives for those able to help themselves;

--income assistance should be provided in cash, rather than in kind, so that families can make their own spending decisions;

--the system should be as simple as possible, replacing the chaotic rules and overlapping programs that we have now;

--the levels of support provided should reflect the compassionate spirit of the American people toward those who cannot provide for themselves; and

--Federal aid should be provided on an equitable basis nationwide.

I believe that the Administration and the Congress, working together, can and must find a solution that accords with these principles.

IMPROVING MANAGEMENT IN THE

FEDERAL GOVERNMENT

The recommendations contained in this budget are part of a broad effort by my Administration, working with the Congress and with State and local officials, to improve public services at all levels. The New Federalism is a crucial element of this broad endeavor. A second, complementary element consists of improving the efficiency and effectiveness of Federal programs in carrying out Federal responsibilities.

Concern for meeting problems must extend beyond the well-intended commitment of public funds. What really matters are the tangible results produced through the effective use of these funds-results measured in terms of better lives for all Americans.

Since I assumed office as President, I have encouraged extensive efforts to streamline and revitalize the organization and management of the Federal Government. These efforts are helping to ensure that the taxpayers get their money's worth from the Government.

To enable the Federal Government to meet emerging challenges more effectively, several new organizations have been created during my Administration, and existing ones have been improved. Among these new offices are Action, the Environmental Protection Agency, the Council on Environmental Quality, the National Oceanic and Atmospheric Administration, the Domestic Council, the Office of Management and Budget, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Council on International Economic Policy, and the Federal Energy Office.

In 1971 I proposed creation of four new departments, including a department to be responsible for energy and natural resources. I continue to urge congressional approval of this proposal as revised in legislation submitted last year. In addition, I ask the Congress to join me in renewing consideration of other departmental reorganization legislation that will permit more effective management of the government.

During the past 25 years, Presidents have been able to make many improvements in Government organization trader Presidential Reorganization Plan Authority. This legislation has now expired. I urge the Congress to restore this authority as soon as possible in order to facilitate continued modernization of our governmental structure.

Good organization is only a first step toward improving governmental performance. Government can be effective only if the public service can develop and retain capable leadership. In response to this need, this Administration has placed high priority on the identification and development of the most able career managers. We intend to intensify this effort.

Increasing the effectiveness of individual programs is another essential step in improving overall governmental performance. During the past year I have launched an intensive effort to strengthen the management of major Federal activities. The emphasis in this management initiative is not on producing a great display of activity, nor on merely rearranging work processes; the emphasis is on producing significant results. To help keep a constant focus on program results, I have asked each major department and agency to work with me in developing a set of specific objectives to be achieved during fiscal year 1974. As we approach 1975, we will identify further objectives. Currently, we are working toward more than 200 such objectives, ranging from international monetary reform to improvement of opportunities for minorities and women.

These objectives will not simply be identified and then filed away and forgotten. Specific results are to be achieved by specific deadlines. These commitments will be reviewed continually and will guide day-to-day operations until the objectives are met.

Congressional procedures, too, are in need of reform--particularly those that deal with the budget. In mv last three budget messages I encouraged the Congress to reform its procedures for considering the budget. I noted that the Congress faced a fundamental problem because it lacks a system for relating each individual spending decision--whether or not it is part of the appropriation process--to overall budget totals. The need for a more systematic congressional process was once again illustrated during the session just concluded. Congressional actions, taken together, increased spending totals over my proposals by $3.8 billion in 1974 and by $8.2 billion in 1975.

The Congress is currently moving toward a new budgetary system. I commend this action and urge that the final procedures worked out by the Congress recognize the necessary and proper role of the President and his responsibility for efficient administration of the executive branch. I am particularly concerned about provisions which would subject some of the most routine financial actions of the executive branch to veto by either house of the Congress.

CONCLUSION

The proposals set forth in this budget are constructive and forward-looking. They meet the Federal Government's responsibility to provide vigorous national leadership toward the solution of major national problems. They do so within the bounds of fiscal prudence.

But the Federal Government cannot do everything. It should not be expected to. Nor can money alone solve all our problems. Recognizing these limitations, my Administration has made an intensive effort to identify and do well those things which the Federal Government should do. By the same token, this budget, like my previous ones, stresses the revitalization of individual initiative and of State and local capabilities. It represents an important further step in my efforts to restore a proper balance of individual and governmental power in America.

RICHARD NIXON

February 4, 1974.