Days after delivering the bombshell announcement of adopting a new economic policy, and doing away with the Bretton Woods system of fixing foreign currency on the value of the U.S. dollar, President Nixon went before Congress again to further outline an economic program. Dubbed the Second State Of The Union, Nixon reiterated the policy he established 25 days earlier was only for a 90 period – that it wasn’t permanent; it was only around to check inflation. He went on to express his goal of creating some 100 million new jobs by 1981. But the shockwaves reverberating around the country from his address of August 15 were still being digested. More changes ahead seemed hard to swallow:
President Nixon: “Twenty-five days ago I took action to attack these problems, to advance the goal of a new prosperity without war and without inflation.
I ordered a 90-day freeze on prices and wages.
I ordered a $4.7 billion cut in Federal spending to allow for tax cuts to create new jobs.
On the international front, I ordered a temporary 10 percent surcharge on products imported from abroad, and I ordered the convertibility of the dollar into gold suspended.
Now, in taking these actions, I knew there were great risks. There were dire predictions of massive resentment, noncooperation at home, and of turmoil and retaliation abroad. But that did not happen.
Here at home, we can be proud of the fact that millions of Americans have shown that they are willing to give up wage increases and price increases that would benefit some of the people, in order to stop the rise in the cost of living for all of the people.
And then, as we look abroad, we find that adjustments are being made and actions are being taken to set up a new monetary system within which America can compete fairly once again. Instead of continued talk about the weakness of the American dollar, we now find in the world a new understanding of the strength of the American economy.
The reaction of the American people to the new economic policy has been unselfish and courageous. The reaction of our trading partners abroad has been measured and constructive. I ask the Congress to respond in a similar spirit, as the Congress has to so many other great challenges in the past. This is a time to set aside partisanship. Let us join together in placing the national interest above special interests in America.
I ask the Congress to consider as its first priority–before all other business–the enactment of three tax proposals that are essential to the new prosperity. These three measures will create 500,000 new jobs in the coming year.
First, I urge the Congress to remove the 7 percent excise tax on automobiles so that the more than 8 million people in this country who will buy new, American built cars in the next year will save an average of $200 each. This is a sales tax, paid by the consumer. Its removal will stimulate sales, and every 100,000 additional automobiles sold will mean 25,000 additional jobs for America’s workers.
Second, I urge the Congress to adopt a job development credit to encourage investment in machinery and equipment that will generate new jobs. This credit was advocated by a Democratic President and enacted by a Democratic Congress in the 1960’s. It was enormously effective then in creating new jobs. It will be just as effective in creating new jobs now, today. First, it will be an incentive to business to him more workers. It will enable wage earners to work more productively, and it will make American products more competitive in the world’s markets.
And third, I urge the Congress to create more consumer purchasing power by permitting the planned $50 increase in the personal income tax exemption scheduled for 1973 to take effect next January 1, one full year ahead of schedule. For a family of four, this could mean an additional $200 increase in tax-exempt income beginning less than 4 months from now.
Taken together, these tax proposals that I ask the Congress to enact would reduce taxes now paid by individuals by $3.2 billion, and would provide $2.7 billion in incentives to companies to invest in job producing equipment.
There is another vital area in which I ask the cooperation of the Congress, and that is the area of budget restraint. Tax cuts to stimulate employment must be accompanied by spending cuts to restrain inflation.
Among the spending cuts that I have ordered are the following:
I have ordered a postponement of scheduled pay raises for Federal employees.
I have ordered a 5 percent reduction in Government employment.
And I have ordered a 10 percent cut in foreign economic aid.
Because the Congress has not yet enacted two of my principal legislative proposals-welfare reform and revenue sharing–I have recommended that their effective dates be postponed, 3 months for revenue sharing, x year for welfare reform. This adjustment recognizes that there is no longer sufficient time to get the administrative machinery in place by the previously scheduled dates.
Now, in the coming year this Congress will face many temptations to raise spending and to cut taxes in addition to the recommendations I have made. I understand those temptations. In the short run, they will be very popular proposals. But as we look at the realities of our budget at this time, we must face up to this hard fact: Any additional spending increases not accompanied by tax increases–and any additional tax cuts not accompanied by spending cuts–will be certain to start us again on a spiral of higher prices.
To spend more than we can afford, or to tax less than we can afford, is the sure route to prices higher than we can afford. I ask, therefore, that the Congress be responsible in recognizing these realities. There are two other matters in which I seek the cooperation of the Congress. The first concerns the immediate future, and the second the long-range future of America in the world.
The 90-day freeze on wages and prices that I announced on August 15 was a temporary measure, to hold the line while the next phase of stabilization was discussed. I am announcing today that the freeze will not be extended beyond 90 days.
But I assure the Congress and the American people that when this temporary and necessarily drastic action is over, we shall take all the steps needed to see that America is not again afflicted by the virus of runaway inflation.”
Ironically, while Nixon was delivering his address to Congress, a group of burglars, known as The Plumbers, were busy breaking into the office of Daniel Ellsberg‘s Psychiatrist. No one could possibly know it at the time, but history would be made on this day – just not for the reasons people expected.
Here is that complete address from September 9, 1971.