Lyndon B. Johnson photo

Annual Message to the Congress: The Economic Report of the President

January 27, 1966

To the Congress of the United States:

A year ago I reported that we were "in the midst of the greatest upsurge of economic well-being in the history of any nation." That upsurge, now about to enter its sixth year, continues without let-up.

• The value of our Nation's annual output of goods and services rose more than one-third from 1960 to 1965. Last year alone, our gross national product (GNP) made a record advance of $47 billion.

• This swelling production has generated an unprecedented rise in the incomes of the American people. Total personal income in December was at an annual rate of $550 billion, up 37 percent in the past 5 years and 7½ percent in the latest 12 months.

• In the past 5 years, the number of Americans at work increased by nearly 7 million; in 1965 alone, by about 2½ million. The rate of unemployment dropped from 6.6 percent in December 1960 (and a high of 7.1 percent in May 1961) to 4.1 percent in December 1965.

• And American jobs are better than ever before. The weekly take-home pay of the average manufacturing worker with three dependents has risen 26 percent in the past 5 years. In the last 12 months alone his gain was 4 percent.

• The profits of our corporations, after taxes, last year were 67 percent ahead of their earnings 5 years earlier--up 20 percent over 1964.

• And average farm income last year rose 23 percent, breaking all records.

Our Nation's industries, shops, and farms--our workers, owners of businesses, professional men and women--prosper today far beyond the dreams of any people, anytime, anywhere.


In the light of these unprecedented and continuing gains, some observers are posing questions not heard in almost a decade, Will there be enough plant capacity to produce all the goods and services buyers will seek?

• Can our employers find the labor they will require to man their production lines?

• Can we avoid bottlenecks in major industries or key skills that would hamper our expansion?

• Can we keep a destructive price-wage spiral from getting underway?

• Can we move ahead with the Great Society programs and at the same time meet our needs for defense?

My confident answer to each of these questions is YES.

But the fact these questions are seriously asked and require serious answers is proof enough that we are in a new economic environment. We are approaching full use of our resources, and this brings new problems.

To those who fear these new problems, I say this:

• These are the problems we have been waiting to encounter for nearly 10 years.

• These problems are the price of our SUCCESS.

• These are the welcome problems of prosperity.

Over the past 5 years we have faced very different economic problems. In meeting these problems we have learned that

--recessions are not inevitable;

--high production does not necessarily mean overproduction;

--expansion need not generate inflation or imbalances that make further expansion unsustainable;

--affluence has not sapped the inherent strength and dynamism of the American economy;

--automation need not create mass unemployment;

--millions who were unemployed are not unemployable;

--prudently expansionary fiscal policies can restore high employment; and

--domestic expansion can go hand in hand with strengthened external payments and a sound dollar.

We have learned how to achieve prosperity. Now we must sustain it, deal with its problems, and make the most of the opportunities it presents.


We face the challenges of prosperity while some 200,000 of our fellow citizens and billions of dollars of our resources are engaged in a bitter defense of freedom in Vietnam. The true costs of this conflict are death, pain, and grief; interrupted careers and separation from loved ones. They are incalculable. But the economic cost of Vietnam imposes no unbearable burden on our resources.

Vietnam does, however, add to the usual problems of maintaining balanced prosperity. It imposes special burdens on some industries, and raises, as well, uncertainties both for the fiscal planning of Government and the private planning of business. These uncertainties underscore the need for flexibility in Government policies and responsibility in private decisions.

Production for Vietnam accounts for less than 1 ½ percent of our GNP. These expenditures are a part of the total demand that provides a full market for our manpower and our production. But the private demands of consumers and businesses, and high-priority civilian programs of Government, could and would provide a far more welcome market for that output if there were no war in Vietnam. Our prosperity does not depend on our military effort.


In a time of high prosperity, economic policy faces new problems. But it is still guided by the basic principles that have served us so well.

Twenty years ago next month, the Employment Act of 1946--which prescribes this Report--became law. The principles of our policy emerge from that Act and from our two decades of experience under it.

The essential and revolutionary declaration of the Employment Act was that the Federal Government must accept a share of responsibility for the performance of the American economy. The nature of that share has been more and more clearly defined over the years, by the recommendations of four Presidents and the enactments of ten Congresses.

I see these as the main tasks of Federal economic policy today:

1. To attain full employment without inflation; to use fiscal and monetary policies to help to match total demand to our growing productive potential, while helping to speed the growth of that potential through education, research and development, manpower policies, and enlarged private and public investment;

2. To help to open the doors of opportunity to all, through developing human resources and removing barriers of discrimination, ignorance, and ill-health;

3. To help to solve social and economic problems that neither private action nor State and local governments can solve alone--an efficient transportation system, the protection of our environment, the health of our agriculture, the reconstruction of our cities;

4. To achieve and maintain equilibrium in the Nation's external payments, and to press for improvements in the international economic order;

5. To maintain and enhance healthy competition;

6. To achieve national purposes as far as possible by enlisting the voluntary cooperation of business, labor, and other groups.

Recognition of these responsibilities of the Federal Government neither lessens the responsibilities nor impairs the freedoms of individuals and private groups; nor does it challenge the authority of State and local governments.

The tasks involve new and growing problems of an increasingly complex and interdependent economy and society. Only the Federal Government can assume these tasks. But the Federal Government by itself cannot create prosperity, reduce unemployment, avoid inflation, balance our external accounts, restore our cities, strengthen agriculture, eliminate poverty, or make people healthy.

Only through a creative and cooperative partnership of all private interests and all levels of government--a creative Federalism--can our economic and social objectives be attained. This partnership has written the story of American success. And a new vitalization of this partnership and a new confidence in its effectiveness have produced the extraordinary economic and social gains of recent years.


Our economy is so vast, and our progress has been so rapid, that it is difficult to keep our gains in proper perspective. Here are a few examples:

--In only seven other countries of the world is total output in a year as large as the increase in our output last year.

--Our stock of private plant and equipment, valued in constant prices, increased as much in 1965 alone as it did in the 4 years 1957 through 1960.

--The increase in Federal cash receipts between fiscal years 1961 and 1967--in spite of $20 billion of tax cuts--will exceed the entire cash receipts of the Federal Government in any peacetime fiscal year prior to 1951.

JOBS, INCOMES, AND PRODUCTION.--The register of our economic gains during 1965 starts with jobs:

--2.4 million more, over-all;

--1.0 million more for teenagers;

--350,000 more for Negroes;

--900,000 more for women;

--1.2 million more for blue-collar workers;

--900,000 more on manufacturing payrolls;

--450,000 more on State and local government payrolls;

--1.0 million more in trade and services.

It continues with pay:

--average hourly earnings up 3 percent in manufacturing, 4 1/2 percent in retail trade;

--average weekly earnings up 3 1/2 percent in manufacturing, 3 1/3 percent in trade.

Other forms of income rose, too:

--farm proprietors' average income up 22 percent;

--average income of owners of unincorporated businesses and professional workers up 7 1/2 percent;

--total dividends paid up 12 percent.

And corporations prospered, with

--profits before taxes up 15 percent;

--profits after taxes up 20 percent;

--corporate retained earnings up 29 percent.

With more people earning, and earning more,

--total personal incomes rose $39 billion, or 7 1/2 percent;

--aggregate consumers' incomes after taxes rose $34 billion, also 7 1/2 percent.

Governmental units benefited from the surge of incomes.

--Federal cash receipts rose $8 1/2 billion.

--State and local governments took in $4 1/3 billion more, reducing the need for tax rate increases to meet their expanding burdens.

The higher incomes of individuals, businesses, and governments came from expanding production (year 1965 over year 1964):

Production of goods and services for consumers .......Up $29 1/2 billion.

Production of new plants and machinery ...................Up $9 1/2 billion.

Production for use of the Federal Government ..........Up $1 1/2 billion.

Production for use of State and local governments ....Up $5 billion.

Production for additions to inventories ......................Up $2 1/2 billion.

Residential construction ............................................No change.

Production for export (less imports) .........................Down $1 1/2 billion.

Total production (GNP). Up $47 billion.

We could produce $47 billion of additional output last year because:

• We had a large net addition of 1.4 million to our labor force;

• We put to work this entire net increment plus about 400,000 who were previously unemployed;

• On the average, each employed person worked a few more hours during the year; and Each man-hour worked in the private economy produced on the average 2.8 percent more output than in 1964.

Increased employment and higher productivity were possible because business investment had provided a substantial expansion of plant capacity; because the new and the previously existing capacity were used more fully than in the year before; and because our labor force was better educated and more skilled than ever before. Our efforts to equip the unskilled and inexperienced to take advantage of rapidly expanding job opportunities have been--and will continue to be--an investment in our productive capacity.

The enlarged market demands which called forth this higher output came from every sector. The two dominant forces, however, were the growing boom in business spending for new plant and equipment and the continued dependability of consumer spending, following close on consumer income. Excise tax cuts and larger social security benefits in 1965 helped to swell the income and buying of households. The tax cuts provided by the Revenue Act of 1964 were sustaining private demand all year. By year's end they had added $30 billion to GNP.

GAINS FOR THE DISADVANTAGED.--The disadvantaged and less fortunate members of our society also shared in our 1965 economic gains.

--For the poor who were able to earn, there were lower unemployment, fuller work schedules, and higher pay.

--For the poor who were capable of earning more, there were job training and help in finding jobs, improvements in education, and the breaking down of barriers of discrimination.

--For the poor who could not earn, there were more adequate social security benefits, new medical programs, and better social services.

--For the poor too young to earn, there were more effective education, assistance to enable them to stay in school, and better health services.

Between 1964 and 1965, an estimated 2.2 million persons moved above the poverty line. Millions of others, mostly children and young people, will have a better chance to break out of poverty in the years ahead as a result of the help they will receive from new Federal education, health, and antipoverty programs enacted in 1964 and 1965.

But 32 million Americans remain in poverty, and millions more are unable to realize their full economic potential. America's abundance leaves behind too many who are aged, who are stranded in declining rural areas, who are in broken families, who are uneducated or handicapped or victims of discrimination. Unemployment among Negroes remains twice that of whites. And an unemployment rate of 13 percent among teenagers means that too many youths find disappointment in moving from school into jobs.

The war on poverty, ignorance, ill-health, discrimination, and inadequate opportunity must go forward.

STRENGTHENED PAYMENTS BALANCE.--In 1965 we reduced our balance of payments deficit to less than half that in 1964 and 1963. We have shown a skeptical world that a voluntary program--relying on the patriotic cooperation of businesses and banks--could work.

We made substantial progress in 1965

--despite the fact that our new program did not start until late in the first quarter of the year;

--despite increased responsibilities in Vietnam;

--despite a temporary decline in our trade surplus;

--despite conversion by the U.K. Government of more than $½ billion of U.S. securities and other assets.

Last year we moved forward toward payments balance without sacrificing our vital domestic or international objectives. And we intend to complete the job this year.

THE RECORD OF COSTS AND PRICES.--Until a year ago, American costs and prices had been essentially unchanged since 1958. Last year, largely through a surge in agricultural and food prices, the record was blemished. Even so, we have not lost ground to our major competitors overseas, whose prices and costs have generally risen more than ours.

Some internationally traded raw materials--particularly metals and hides--are costing us more. And higher prices for petroleum products and some machinery have also nudged up our price indexes.

But labor costs--the most basic element in the structure of our costs--have barely moved, as gains in productivity have largely offset moderate increases in hourly labor costs.

In many major sectors of our economy, price stability is still the rule, and some important prices are still going down, in line with lower costs. In December, some of the wholesale prices that were lower than a year earlier were:

fresh and dried fruits millwork
and vegetables building paper and
plant and animal fibers board
coal motor vehicles
electric power heating equipment
packaged beverage household appliances
materials televisions, radios,
manmade fibers phonographs
inedible fats and oils floor coverings
paint materials flat glass
crude rubber gypsum products.

Many industries and markets have demonstrated that the gains of lower costs and rapidly rising productivity can be shared with consumers. Wholesale prices of the following categories of products in December averaged at least 5 percent lower than in 1957-59:

fresh and dried fruits crude rubber
and vegetables tires and tubes
grains plywood
plant and animal fibers building paper and
packaged beverage board
materials heating equipment
manmade fibers household appliances
paint materials televisions, radios, and
drugs and phonographs
pharmaceuticals asphalt roofing.

Those who proclaim inflation is already here have not turned over all the price tags.


Demand will continue to grow rapidly in 1966 and production will respond. The vigor of investment spending demonstrates strong business confidence in the growing sales, rising profits, and firm operating rates which spur expansion and modernization. The rising defense needs of the Federal Government are an important new force in the economy. With growing support from Federal grant programs, State and local purchases will keep moving ahead. Rising consumer incomes from wages, dividends, interest, professional work, and farming will again largely be devoted to expenditures for better living.

These forces should add very nearly as much to our GNP in 1966 as the record gain of $47 billion last year. As the midpoint of a $10 billion range, $722 billion is the projected level of GNP in 1966. With that output, we foresee

--an extra $40 billion of spending and production for civilian needs, both private and public;

--unemployment shrinking below 4 percent, and below any yearly average rate since 1953;

--great advances in the productive capacity of our industries; --further good gains in productivity; and

--full use, without overuse or strain, of our productive capacity.

FISCAL AND MONETARY POLICY.--The fiscal program I recommend for 1966 aims at full employment without inflation. It is a responsible program. It recognizes that vigorous private demand and required defense spending could upset the balance of supply and demand so diligently pursued by fiscal and monetary policies in recent years, and now so effectively achieved.

Until this year, pursuit of this balance has pointed fiscal policies toward the stimulation of demand. Now a stimulus is no longer appropriate.

I have reviewed every program of Government to make room for the necessities of defense. I have sharply reduced or eliminated those civilian programs of lowest priority.

But, as I indicated in my State of the Union Message, I am unwilling to declare a moratorium on our progress toward the Great Society. My budget will add $3.2 billion to our war against poverty, ignorance, and disease. Yet savings elsewhere will hold the rise in the Administrative Budget-apart from the added costs of Vietnam--to only $600 million.

Moreover, I am asking the Congress to enact promptly a combination of proposals affecting tax payments in the year ahead:

--a rescheduling of the January 1, 1966 and later excise tax reduction enacted last June for automobiles and telephone service;

--a graduated withholding system that will improve the pay-as-you-go basis of our personal income taxes without increasing tax rates or tax liabilities;

--a corresponding speed-up in payments of corporate income taxes this year and next, also without increasing tax rates or tax liabilities; and

--a method of paying self-employment Social Security taxes on a current basis.

These measures will let us stay close to a high-level balance between the revenues that the Federal Government draws out of the economy and the expenditures that it puts back into the spending stream, and to a high-level balance between total demand and the economy's capacity to produce. It is my judgment that this budget provides the appropriate fiscal environment for the maintenance of basic price stability with continued growth.

I will also look to the Federal Reserve System to provide assistance in promoting the objectives we all share:

--meeting the credit needs of a vigorous and growing economy, while

--preventing excessive credit flows that could carry the pace of expansion beyond prudent speed limits.

THE UNCERTAINTIES.--We have made the best economic judgments we can. This year, they were unusually difficult. If the tax measures I am now proposing, in conjunction with the moderating influence of monetary policy, do not hold total demand within bounds of the Nation's productive capacity, I will not hesitate to ask for further fiscal restraints on private spending. Nor will I hesitate to ask for such further fiscal action if additional defense requirements demand it during the year. And I will welcome the opportunity to alter my budget in the event that a relaxation of international tensions permits lower defense outlays than are now foreseen.

Our defense needs are great; but our growth is far greater. The demands on our economy are strong; but its productive capabilities are enormous. Surprises surely lie ahead; but our ability to cope with change is strong and improving.


IN 1966

One of the problems of prosperity we face in 1966 is that of achieving stability of prices and costs at full employment.

The basic precondition for price stability is a fiscal-monetary policy that deters total demand for goods and services from outrunning potential supply. But history proclaims that something more is needed: a sense of responsibility to the public interest by labor and business in setting wages and prices.

The vigorous economy we foresee in 1966 will tempt labor unions to demand wage increases that would raise costs, and businesses to raise prices when profit margins are already fully adequate. Labor must remember that growing employment and productivity are the foundation of higher wages, and business that an expanding economy is the basic source of profit gains. These foundations must not be jeopardized.

The Federal Government does not have authority to impose ceilings on wages and prices.

But when 200,000 of our fellow citizens are risking their lives in the defense of freedom overseas, the Government's duty is to ask those who enjoy a comfortable prosperity at home to exercise responsibly their freedom to set prices and wages.

Foregoing the freedom to act irresponsibly is no real sacrifice. For irresponsible action can only bring on an inflation that would damage all--labor, business, and the national interest.

The attached Report of the Council of Economic Advisers contains a thorough discussion of its guideposts for noninflationary wage and price behavior. To maintain price stability in the expanding economy of 1966, it is vitally important that labor and industry follow these guideposts.

The public can expect that the responsible actions of labor and management will be strengthened and supplemented by all the policies of the Federal Government:

--Manpower, education, and rehabilitation programs will continue to train the unemployed and to prepare our youth, increasing the supply of qualified workers and their productivity.

--Where available, surplus Federal stockpiles will be used to prevent unnecessary shortages of materials and commodities.

--Defense procurement, agricultural, and other policies will be adjusted where necessary to avoid contributing to instability of prices.

--Fair Labor Standards legislation and Government pay increases should be consistent with the guideposts.

There are no general labor shortages in our economy now, and none should develop in the year ahead. But in some industries, occupations, and areas, limited stringencies are appearing.

Prompt and effective action will be taken to meet any problem of specific labor shortage. I have instructed the Secretary of Labor to take all possible and necessary steps. And I have asked all other Departments to cooperate in this effort.

It will not be easy to reconcile price stability and full employment. Some price movements reflect worldwide changes in supply and demand. But over-all stability of costs and prices will be preserved in the year ahead, provided that during 1966

--public policies maintain a balance between overall supply and demand and address themselves vigorously to any emerging sectorial imbalances, and

--business and labor accept the principles of the guideposts for noninflationary behavior.

We will have demonstrated that a free economy can both maintain full employment and avoid inflation--and do so without arbitrary controls.


These are the objectives of our international economic policies in 1966:

--to correct our remaining balance of payments deficit, so that the dollar will remain strong;

--to work toward reduction of trade barriers, so that all nations may reap the benefits of freer trade;

--to improve the international monetary system, so that it will continue to facilitate sound and orderly growth of the world economy;

--to press forward with the other fortunate nations in the great international task of our age: helping those countries now economically less advanced which are prepared to help themselves make rapid progress toward a better life in freedom.

BALANCE OF PAYMENTS.--Decisive progress was made in 1965 toward reducing our balance of payments deficit. Though the results for 1965 are gratifying, we cannot afford to relax. We have not yet balanced our external accounts.

For 1966, external balance is our goal. It requires that

• Business continue to cooperate wholeheartedly in following the strengthened guidelines governing capital flows announced in December;

• Banks and financial institutions maintain their excellent performance of last year;

• Businesses sell even more abroad this year, in spite of full domestic order books;

• Business and labor keep costs and prices stable in order to maintain the competitiveness of our goods and services in international markets;

• Government work vigorously to minimize the dollar drain abroad of its aid and defense programs as well as all other activities;

• The Congress pass the tax legislation I recommended last year to enhance opportunities for foreigners to invest in the United States;

• We intensify our efforts to encourage our own citizens and foreigners to travel in the United States. I am directing that high priority be given to these efforts.

TRADE.--The year 1966 is the year when the world can take a giant step forward in liberalizing international trade by successfully concluding the Kennedy Round of negotiations to reduce trade barriers on all classes of products. The resulting growth of world trade and world income will benefit all countries, developing as well as industrial. The United States will bend every effort to get meaningful negotiations back on the track. This great venture in international cooperation must not fail.

We shall continue our efforts to improve the trade prospects of the developing countries by helping to stabilize commodity trade, by supporting regional integration among them where practicable, by providing access to markets, and by giving positive assistance to export promotion.

INTERNATIONAL MONETARY REFORM--As we achieve and maintain balance in our external accounts, dollars will no longer add to international monetary reserves as they have in the past. We learned long ago that we cannot rely on gold alone. The free world must look to new sources of liquidity--rather than to deficits in the U.S. balance of payments--to support growing international trade and payments.

We are, therefore, pressing forward with other nations

--to assure the adequate and orderly growth of world monetary reserves;

--to improve the adjustment of imbalances by both surplus and deficit countries;

--to strengthen the monetary system that has served the world so well.

I hope that the major industrial nations--and then the entire community of free nations--will reach an agreement that will make creation of new reserve assets a deliberate decision of the community of nations to serve the economic welfare of all.

ECONOMIC ASSISTANCE--We have molded our foreign assistance policies into more efficient tools with which to confront one of history's gravest challenges--the development of the impoverished but awakening and turbulent two-thirds of the world.

The United States stands ready to continue to assist those countries which have demonstrated their commitment to the task of moving their economies forward toward self-sustaining growth under freedom.

In recent years, I have consciously held back further increases in our foreign assistance request while we designed a lean but effective program to give maximum impact to each dollar we spend.

Today, we are ready to move forward with special emphasis on three areas in which the United States is particularly well qualified to help:

--agriculture, to stimulate food production where it fails to keep pace with spiraling populations;

--health, to strengthen millions who could contribute more fully to their own economic progress;

--education and training, to provide the modern skills needed for development.


We are an urban society. In 1900, America's urban areas contained 30 million people, 40 percent of our population. By the year 2000, 250 million, 80 percent of our population, are likely to be urban. The quality of American life increasingly depends on the physical, economic, aesthetic, and social qualities of our urban centers.

American cities possess some of the rarest treasures of art, the finest music and theater, the greatest universities, the loveliest parks, the most splendid vistas, the most elegant and luxurious living, in the entire world. Yet they also contain degrading poverty, revolting slums, incredible traffic congestion, bitter racial tensions, physical decay and ugliness, political disorganization, and rising crime and delinquency.

The Congress created last year a Department of Housing and Urban Development, giving it responsibilities for coordinating Federal programs affecting housing, urban areas, and urban people, and for administering many such programs. I have no intention of letting it become merely a housekeeping agency to supervise miscellaneous programs.

With the help of the finest minds in the Nation, we have been developing a program to rebuild--in cooperation with State and local governments, private agencies, business enterprises, and local citizens--the physical, institutional, and social environment of our urban areas. Each city should plan on an integrated basis for its own physical, economic, and social development. And where those plans are imaginative, farsighted, and efficient, the Federal Government should help to make them realities.

I am asking the Congress to consider proposed legislation to carry out these objectives. I am also preparing proposals for legislation to bar discrimination in the sale or rental of housing--a condition which has contributed to many urban problems.


The revolutionary changes in transportation technology of the past half century have not been matched by equal progress in our public policies or our Federal organization.

I am recommending the creation of a Department of Transportation

--to manage the vast Federal promotional programs in highways, waterways, air travel, and maritime affairs, and

--to take leadership in the development of new transportation policies in accord with current realities.

I am proposing again this year increased user charges on highways and aviation and the introduction of nominal user charges on inland waterways. Such charges will improve efficiency in the use of resources, and reimburse the Federal Government for a part of its expenditures which directly benefit the users of these facilities.

We spend billions of dollars in medical research each year to conquer disease and prolong life. Yet we still put up with the senseless slaughter of thousands of Americans on our highways.

Fifty thousand Americans met their death in traffic accidents during 1965. About 3 1/2 million were injured. The economic cost of accidents is estimated at around $8 billion a year.

We can no longer ignore the problem of automobile safety. We can no longer procrastinate and hope that the situation will improve. I will propose new programs to protect the safety of our citizens and the efficient flow of our commerce.


Our means for attacking the shameful pollution of our environment were strengthened in the first session of this Congress by important new standard-setting authority over water quality and automotive exhausts.

Federal agencies have begun cleaning up the numerous and extensive sources of water pollution from their own facilities, in response to my Executive Order. Despite budgetary stringency, expenditures for this purpose will be given high priority. I shall issue an Executive Order covering air pollution from Federal installations.

I propose that, in cooperation with appropriate State and local authorities and private interests, we carry out projects to clean up several entire river basins, following the example of our efforts to clean up the Potomac. Special Federal financial assistance will be necessary; this should be conditioned on new financial and organizational arrangements by State and local authorities.


UNION SECURITY AGREEMENTS.--Strong and responsible collective bargaining is an important instrument of a free and healthy economy.

To improve its functioning and to make the national labor policy uniform throughout the country, I again urge the Congress to repeal Section 14(b) of the Taft-Hartley Act.

STRIKE EMERGENCIES.--The recent transit strike in New York City illustrates our helplessness in preventing extreme disruption to the lives and livelihoods of a city of 8 million people. I intend to ask the Congress to consider measures that, without improperly invading State and local authority, will enable us to deal effectively with strikes that may cause irreparable damage to the national interest.

UNEMPLOYMENT INSURANCE.--Our system of Unemployment Insurance has not kept pace with our advancing economy. The time to modernize it is now, when unemployment is low and the cost of improved protection can be readily absorbed. We need a program that will provide more realistic benefits, including benefits for more workers and for longer periods of joblessness; that will correct abuses and assure efficient and responsible administration; and that will broaden the system's tax base and strengthen its financing. I urge the Congress to enact such a program.

FAIR LABOR STANDARDS.--Millions Of workers at the bottom of our wage scale still lack the protection of Federal minimum standards. At the same time, we need to reinforce this protection by raising the minimum wage.

I recommend the extension of the Fair Labor Standards Act to large numbers of additional workers. In enacting higher minimum wage levels, the Congress should consider carefully their effects on substandard incomes, on cost and price stability, and on the availability of job opportunities for marginal workers.


Against a background calling for fiscal restraint, I cannot this year endorse any specific legislative measure, however meritorious, involving significant net tax reduction. The danger of inflation from increased demand would be too great, and any special tax reduction now would postpone the time when we can achieve a meaningful general tax reduction.

Although tax reduction is not feasible this year, improvement of our tax system is a continuing need which will concern this Administration and which deserves the support of all Americans.

One major goal must be simplification of the tax law. Another aim must be a more equitable distribution of the tax load. The great variation of tax liability among persons with equivalent income or wealth must be reduced. Further, when tax reduction once again becomes feasible, particular attention must be given to relief of those at or near poverty levels of income.

Finally, we must review special tax preferences. In a fully employed economy, special tax benefits to stimulate some activities or investments mean that we will have less of other activities. Benefits that the Government extends through direct expenditures are periodically reviewed and often altered in the budget-appropriation process, but too little attention is given to reviewing particular tax benefits. These benefits, like all other activities of Government, must stand up to the tests of efficiency and fairness.

We must constantly seek improvements in the tax code in the interests of equity and of sound economic policy.

I welcome the concern over these problems shown by the Chairmen of the tax committees of the Congress.

As a specific tax reform which can be accomplished this year, I call upon the Congress to deal with abuses of tax-exempt private foundations.

We must always be prepared to meet quickly any problems that arise in the path of continued, stable economic growth, whether the problems call for fiscal stimulus or fiscal restraint. Background tax studies by both the Congress and Executive Branch should therefore be adequate to permit quick decisions and prompt action to accommodate short-run cyclical changes. If quick action is ever needed, we should not have to begin a long debate on what the changes in taxes should be.


The vigor and soundness of our financial institutions are vital to the vigor and soundness of our economic expansion. Actions to ease unnecessarily restrictive regulations have been taken in the past; they have borne fruit in stronger competition and a more efficient flow of funds from savers to borrowers with the most urgent needs.

But appropriate regulations are clearly required to protect the safety of savings of American families, to assure the most efficient and equitable regulation of financial institutions, and to create still better channels for the flow of funds to borrowers.

For these reasons, I recommend congressional action on financial legislation to

--arm regulatory agencies with a wider range of effective enforcement remedies;

--strengthen statutory provisions dealing with savings and loan holding companies;

--increase the maximum amount of insurance coverage for bank deposits and savings and loan accounts; provide safeguards against conflict of interests in the management of these institutions; and make regulations applying to various types of institutions as parallel as possible;

--provide for Federal chartering of mutual savings banks.


I have already asked for the cooperation of business and labor in preserving the stability of costs and prices. But the consumer also has a responsibility for holding the price line.

To fulfill his responsibility, the consumer must have access to clear, unambiguous information about products and services available for sale. This will enable him to reward with his patronage the most efficient producers and distributors, who offer the best value or the lowest price.

We should wait no longer to eliminate misleading and deceptive packaging and labeling practices which cause consumer confusion. The fair packaging and labeling bill should be enacted.

While the growth of consumer credit has contributed to our rising standard of living, confusing practices in disclosing credit rates and the cost of financing have made it difficult for consumers to shop for the best buy in credit.

Truth-in-lending legislation would provide consumers the necessary information, by requiring a clear statement of the cost of credit and the annual rate of interest.

Our legislation protecting the public from harmful drugs and cosmetics should be strengthened. I shall propose legislation for this purpose.


A few years ago, much was heard of the "European economic miracle." Today, across the Atlantic and around the world one hears once again of the "American economic miracle."

For the American economy, in the past 5 years, has demonstrated anew the confident vitality, the internal dynamism, and the enormous productivity which had long been its hallmark. We had settled for a while on what seemed a plateau of affluence; now, once again, there has been the strong thrust of progress--but a newly steady and balanced progress.

We have again shown the world what free men and a free economy can achieve. The peoples struggling toward economic development see with renewed interest that free markets and free economic choices can be a mighty engine of progress.

Moreover, there is new respect in the world for an America concerned with using its abundance to enhance the quality of human life: for a people

--who undertake a war on poverty along with the defense of freedom;

--who seek to restore their cities to greatness and to conserve the beauties of their landscape;

--who are determined to break down a centuries-old barrier of prejudice and injustice;

--who are resolved to lift the quality of education at every level;

--who are determined to promote and reward excellence in every endeavor;

--who have provided new health services and better social security for their older citizens;

--who offer to share their abundance and technical skills with a needy world.

The new vigor and progress of America can be a source of satisfaction. Yet we cannot rest on past accomplishments. Continuing problems challenge our determination and our resourcefulness.

Perhaps our most serious economic challenge in 1966 will be to preserve the essential stability of costs and prices which has contributed so significantly to our balanced progress.

I do not know what additional burdens of defense the American economy will be asked to assume in 1966. Whatever they are, they will be met, and they will be small relative to the growth of our abundance. But in an economy approaching full use of its resources, the new requirements of Vietnam make our task of maintaining price stability more difficult.

To insure against the risk of inflationary pressures, I have asked Americans to pay their taxes on a more nearly current basis, and to postpone a scheduled tax cut. If it should turn out that additional insurance is needed, then I am convinced that we should levy higher taxes rather than accept inflation--which is the most unjust and capricious form of taxation.

We know that we do not need to put our growing economy into a straightjacket, or to throw it into reverse. But the extent of the fiscal or monetary restraint that will be needed to avoid inflationary pressures will depend directly on the restraint and moderation exercised by those who have power over wages and prices.

I again ask every leader of labor and every businessman who has price or wage decisions to make in 1966 to remember that his decisions affect not alone the wages of his members or the returns of his stockholders. Shortsighted pursuit of short-run interests fails in the longer run to advance the interests of either labor or management. And it surely does not advance the interests of the Nation.

I am confident that the overwhelming majority of private decisions in 1966 will be sound and responsible--just as I am determined that public decisions will be fully responsible.

If they are, the American economic miracle will remain in 1966 the single most important force in the economic progress of mankind.

January 27, 1966

Note: The President's message together with the Annual Report of the Council of Economic Advisers is printed in "Economic Report of the President, Transmitted to the Congress January 1966" (Government Printing Office, 1966, 306 pp.).

Lyndon B. Johnson, Annual Message to the Congress: The Economic Report of the President Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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