[Economic Report of the President (2003)] [Administration of George W. Bush] [Online through the Government Publishing Office, www.gpo.gov] 108th Congress, 1st Session ........................... H. Doc. 108-2 Economic Report of the President Transmitted to the Congress February 2003 together with THE ANNUAL REPORT of the COUNCIL OF ECONOMIC ADVISERS UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 2003 --------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail Stop: SSOP, Washington, DC 20402-0001 CONTENTS Page ECONOMIC REPORT OF THE PRESIDENT ....................... 1 ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* ..... 5 OVERVIEW ............................................... 15 CHAPTER 1. MACROECONOMIC PERFORMANCE IN 2002 ........... 27 CHAPTER 2. CORPORATE GOVERNANCE AND ITS REFORM ......... 73 CHAPTER 3. POLICIES FOR DYNAMIC LABOR MARKETS .......... 109 CHAPTER 4. REGULATION IN A DYNAMIC ECONOMY ............. 135 CHAPTER 5. TAX POLICY FOR A GROWING ECONOMY ............ 175 CHAPTER 6. A PRO-GROWTH AGENDA FOR THE GLOBAL ECONOMY .. 213 APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2002 ..... 257 APPENDIX B. STATISTICAL TABLES RELATING TO INCOME, EMPLOYMENT, AND PRODUCTION ......................... 269 * For a detailed table of contents of the Council's Report, see page 9 ECONOMIC REPORT OF THE PRESIDENT To the Congress of the United States: The economy is recovering from the effects of the slowdown that began in the middle of 2000 and led to the subsequent recession. The American economy has been hit hard by the events of the past three years, most tragically by the effects of the terrorist attacks of September 11, 2001. Our economy and investor confidence were hurt when we learned that some corporate leaders were not playing by the rules. The combined impact of these events, along with the three-year decline in stock values that impacted business investment, slowed growth in 2002. Despite these challenges, the economy's underlying fundamentals remain solid--including low inflation, low interest rates, and strong productivity gains. Yet the pace of the expansion has not been satisfactory; there are still too many Americans looking for jobs. We will not be satisfied until every part of our economy is vigorous and every person who wants a job can find one. We are taking action to restore the robust growth that creates jobs. In January, I proposed a growth and jobs plan to add needed momentum to our economic recovery. We will accelerate the tax relief already approved by Congress and give it to Americans now, when it is most needed. Lowering tax rates and moving more Americans into the lowest tax bracket will help our economy grow and create jobs. Faster marriage tax relief and a faster increase in the child tax credit will especially help middle-class families, and should take effect now. We will take steps to encourage small business investment, helping them to expand and create jobs. We will end the unfair double taxation of corporate income received by individuals. By putting more money back in the hands of shareholders, strengthening investor confidence in the market, and encouraging more investment, we will have more growth and job creation. These steps will allow Americans to keep more of their own money to spend, save, or invest. They will boost the economy, ensure that the recovery continues, and provide long-term economic benefits through higher productivity and higher incomes. As our economy recovers, we also have an obligation to help Americans who have lost their jobs. That is why we extended unemployment payments for workers who lost their jobs and improved incentives for investment to create new jobs. I also proposed a bold new program of reemployment accounts to help workers searching for jobs. Our commitment to a strong economy does not stop with these important steps. We will continue to strengthen investor confidence in the integrity of our markets. We will develop better ways to train workers for new jobs. We will make the Nation's regulations and tax code less onerous and more reflective of the demands of a dynamic economy, and expand opportunities for open trade and stronger growth in all nations, especially for emerging and developing economies. Our Nation's economic progress comes from the innovation and hard work of Americans in a free market that creates opportunities no other system can offer. Government does not create wealth, but instead creates the economic environment in which risk takers and entrepreneurs create jobs. With the right policies focused on growth and jobs, strong economic fundamentals--and hard work--I am confident we will extend economic opportunity and prosperity to every corner of America. THE WHITE HOUSE FEBRUARY 2003 THE ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS LETTER OF TRANSMITTAL Council of Economic Advisers, Washington, D.C., January 29, 2003. Mr. President: The Council of Economic Advisers herewith submits its 2003 Annual Report in accordance with the provisions of the Employment Act of 1946 as amended by the Full Employment and Balanced Growth Act of 1978. Sincerely, Robert Glenn Hubbard Chairman Randall S. Kroszner Member