To the Congress of the United States:

Tonight's State of the Union Address concentrates on this year's highest priorities -- a strong energy bill; a coordinated economic program of job creation, tax reduction, tax reform and anti-inflation measures; making the government more effective and efficient;

Maintaining the peace through a strong national defense; and ratifying both the Panama Canal Treaties and, if completed, the SALT II treaty.

It is important that the Congress and the Nation also understand what our other important initiatives and goals will be for 1978. I am therefore sending to Congress this separate, more detailed State of the Union Message, which describes Administration priorities in the areas not fully covered in the Address.

DOMESTIC AFFAIRS A number of serious domestic problems faced the Nation when I took office one year ago. The economy had not yet fully recovered from the recession; our country had no sound energy policy; the Federal government was operating inefficiently and ineffectively in many areas; concerns about the openness and integrity of our government remained in the aftermath of Watergate;

And many of our most pressing social problems had not been addressed.

In 1977, my Administration did not solve all of those problems. But Congress joined us in tackling many of these issues, and together we made progress. Now that a year has passed, I believe we are a more confident people, with more trust in our institutions. We are a country on the move again, prepared to address our problems with boldness and confidence, at home and abroad.

We have reasserted our concern for the problems of people here at home and reaffirmed our position of moral leadership in the world. This year, my domestic goals will continue to reflect those concerns that guided my actions in 1977: restoring economic prosperity; meeting our Nation's human needs; making the government more efficient and more responsive;

And developing and protecting our natural resources.

RESTORING ECONOMIC PROSPERITY I am devoting a substantial part of my State of the Union Address to the need for a comprehensive economic program, and I will devote the bulk of my Economic Report to Congress, to be delivered tomorrow, to a complete description of my Administration's economic goals and objectives.

In this Message, therefore, I will not repeat those statements but I want to set forth briefly the key elements of those proposals: -- a $23 billion income tax cut in 1979, with $17 billion going to individuals and their families and $6 billion going to businesses; -- a tax reform program designed to make our tax laws fairer and simpler; -- an anti-inflation program, designed to reduce annual increases in wages and prices, with the cooperation of labor and business and with the Federal government setting an example;

Reductions of $2 billion in excise and payroll taxes will also make a contribution to reducing inflation; -- an extension of the funding for 725,000 public service (CETA) jobs, and a $700 million increase in spending for our youth employment efforts; -- a major new $400 million private sector jobs initiative, designed primarily to encourage businesses to hire unemployed minorities and youth.

I plan to work very closely with Congress to secure prompt action on these economic proposals. Their adoption will help achieve the kind of economic prosperity for our Nation that all of us want. Along with a sound energy bill, enactment of these economic proposals will be my highest domestic priority for 1978.

ENERGY

There can be no higher priority than prompt enactment of comprehensive energy legislation along the lines submitted to the Congress last spring.

Huge oil price increases in 1973-74 contributed to the double-digit inflation of 1974, and to the worst recession in 40 years. These price hikes were also the principal cause of our foreign trade deficit, which has contributed to the weakness of the dollar abroad. Unless we act now, our energy problems will rapidly get worse.

Failure to act will fuel inflation, erode the value of the dollar, render us vulnerable to disruptions in our oil supply, and limit our economic progress in the years to come. I am confident that the Congress will respond to the Nation's clear need, by enacting responsible and balanced energy legislation early this year.

EMPLOYMENT

Last year we made considerable progress in our efforts to reduce unemployment. The unemployment rate decreased from 7.8% to 6.4%. During the year, 4.1 million new jobs were created. Unemployment fell by 1.1 million workers. The actions we took as part of our $21 billion economic stimulus package substantially helped us achieve these favorable results.

In 1978, the Administration will continue its efforts to reduce unemployment still further and to increase employment opportunities for all Americans. As part of the budget I will propose: -- additional funds to increase youth programs 260% above the 1976 level, providing $2.3 billion in outlays and 450,000 man-years of employment and training for young workers; -- a $400 million private sector employment program focused on youth and other disadvantaged workers and aimed at mobilizing private industry to work with government in finding jobs.

It will be implemented through business councils established throughout the country; -- maintenance of the 725,000 CETA jobs through 1979, while tying them in future years to national unemployment rates; beginning of a demonstration program for the jobs component of the Better Jobs and Income Program. Humphrey-Hawkins Legislation The Administration will seek passage of the Humphrey-Hawkins Full Employment and Balanced Growth Act.

This Act will help the Administration and the Congress in planning our efforts to reduce unemployment and to create jobs, while maintaining reasonable price stability. Its enactment would serve as a living memorial to the late Senator Hubert Humphrey. Private Sector Jobs The Administration plans a major $400 million effort to involve business and labor in the training and hiring of the hard-core unemployed.

The program will closely tie the Federal employment system with the private sector, through the use of business councils. I am confident that the private sector will respond positively to the call to help the Nation solve one of its most serious problems the employment of our youth and minorities.

INFLATION

Although inflation is lower now than in the recent past, we still must do more to keep it down.

The steps my Administration will take include: -- incentives for business investment, contained in our tax proposals, which will increase productive investment, and thereby help us hold down prices and costs; -- reduction in excise and unemployment taxes, proposed in the new budget; -- continuing reductions in needlessly complex Federal regulations.

We have established a high-level interagency committee to review the effects of regulation in our economy, and we will continue our efforts for regulatory reform in the airline industry and elsewhere; -- a special effort to hold down the soaring costs of health care, through enactment of the Hospital Cost Containment Act.

But the government cannot solve this problem alone especially once business, labor, and consumers have accel)ted inflation as a fact of life, and adjusted their behavior accordingly. I have therefore asked business and labor to undertake, voluntarily, a new program to reduce inflation. I will ask each industry to aim for smaller price and wage increases in 1978 than it averaged over the last two years.

As a major employer the Federal government should take the lead in this effort. Voluntary cooperation is one way -- perhaps the only way -- to reduce inflation without unacceptable government interference and coercion.

URBAN ASSISTANCE AND COMMUNITY DEVELOPMENT

The Administration and Congress took major steps last year to meet the needs of our cities.

We increased funding for Community Development Block Grants by $2.7 billion over three years, and provided an alternative formula for allocating funds that was more responsive to the needs of distressed urban areas. Next year we will recommend an increase of $150 million over the 1978 level for the Community Development Block Grant program.

We enacted a new program of Urban Development Action Grants at an annual level of $400 million, and extended and expanded Anti-Recession Fiscal Assistance (ARFA). I am proposing that the ARFA program, which expires September 30, 1978, be extended. We are evaluating possible revisions in programs and funding, and will make our recommendations to the Congress within two months.

The Administration is also studying closely the possible need for extended Federal lending to New York City. The current legislation expires on June 30, 1978. We are committed, along with the State and City, to preserving the City's solvency. If such extended lending is necessary for that purpose, we will propose it.

However, all the interested parties must contribute to a permanent solution. This spring I will submit to Congress a message outlining this Administration's urban policy, based on the work of the Urban and Regional Policy Group, chaired by the Secretary of Housing and Urban Development. It will be designed to make existing Federal programs more effective, and will involve new initiatives and resources to address our urban needs.

The long-standing problems of our cities are structural in nature and cannot be corrected by short-term or one-time efforts. This Administration is committed to a long-term and continuing effort to meet stubborn problems and changing needs. Our urban policy proposals will: -- build a more effective partnership between the Federal government, State and local governments, the private sector, neighborhood groups and concerned citizens; -- be sufficiently flexible to meet the diverse needs of our urban areas and to respond to particular problems of distressed areas; -- address the fiscal needs of hardpressed urban governments, as well as the economic and social needs of city residents; -- improve the urban physical environment and strengthen urban communities; -- use Federal assistance to stimulate job-creating investments by the private sector and to encourage innovative actions by the State and local governments.

AGRICULTURE AND RURAL DEVELOPMENT

Decent farm income and a strong family farm system are vital to our national economic stability and strength. For too long farm prices for many commodities have been severely depressed. Working with the Congress in the past year, we have adopted new programs and policies designed to strengthen farm income and to ensure abundant, reasonably priced food for consumers.

Partially as a result of these policies and programs, farm prices are now improving. Nevertheless, we cannot be satisfied with the economic condition of many American farmers today. We will continue to monitor our agricultural economy and to work with Congressional and farm leaders to make certain that Federal programs and policies are carried out effectively.

Food and Agriculture Act In the past year we have worked with the Congress to enact a new comprehensive Food and Agriculture Act, which will protect producers and consumers. We have also exercised set-aside authority for wheat and feed grains, which will protect farm income. This year we expect to pay farmers $7.3 billion for all price support programs.

The new farm bill which became effective October 1, 1977, achieves long-needed changes in our agricultural policies, including: -- minimal governmental intervention in markets and in the decisions farmers make; -- price support loans for major commodities that permit us to remain competitive in world markets; -- a grain reserve designed to remove excess products from the market and hold them until supplies are short; -- income support levels based on cost- of-production.

Grain Reserve Last year we initiated a plan to place 30-35 million metric tons of food and feed grains in reserve. Establishing this reserve will add further strength and stability to the market and provide a hedge against export control on grain. Most of this grain will be owned and controlled by farmers.

To strengthen farmer control of the grain and to help keep the grain out of government ownership, terms of the farmer storage facility loan program were liberalized. In 1978, the Administration will propose an international emergency grain reserve of up to 6 million metric tons to help us meet our food aid commitments abroad.

Agricultural Disaster and Drought Aid Because of the record droughts in 1977, I worked with Congress to pass an $844 million Emergency Drought Assistance Program. This year we will ask Congress to eliminate the many inconsistencies and inequities in existing disaster aid programs, and we will continue to give high priority to addressing the effects of the drought, which has begun to abate.

We are taking other steps to improve life in rural America. I recently signed a law to encourage better delivery of health services in rural communities. We will continue to expand the assignment of the National Health Service Corps' doctors, dentists and other health professionals to underserved rural areas.

We will shortly be announcing methods to improve the effectiveness of rural housing programs with greater emphasis on home ownership for rural Americans. Agricultural Exports I want to increase our agricultural exports. To do so we need competitive prices, high quality products, and reserve supplies to meet all contingencies.

We must remove unnecessary barriers to exports. And we must have an affirmative export policy. In 1977, the Administration more than doubled (to $1.7 billion) the short-term export credit program, increased Soviet grain purchase authorization to 15 millions tons, developed a risk assurance program, and expanded efforts to develop export markets around the world.

This year we will continue these efforts, especially to reduce barriers to agricultural trade. Sugar To stabilize world sugar prices and to protect domestic sugar-producers, we negotiated an international sugar agreement this year with the major sugar producing countries. We will seek Congressional ratification of the agreement early in 1978. The sugar program required by the 1977 Food and Agricultural Act will protect the domestic sugar industry in the meantime.

Rural Development and Credit Policy In fiscal year 1977, the Farmers Home Administration provided nearly $7 billion in loans in four areas: farming, housing, community facilities and business and industrial development. We expect to provide at least $1 billion more in the current fiscal year.

SMALL BUSINESS