[Economic Report of the President (2004)]
[Administration of George W. Bush]
[Online through the Government Printing Office, www.gpo.gov]

108th Congress 2d Session ................... H. Doc. 108-145
 
Economic Report of the President





Transmitted to the Congress
February 2004



together with
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS

UNITED STATES GOVERNMENT PRINTING OFFICE

WASHINGTON : 2004
----------------------------------------------------------------------
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ISBN 0-16-051539-4

CONTENTS
Page


ECONOMIC REPORT OF THE PRESIDENT ..............................  1
ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* ............  9
OVERVIEW ...................................................... 17
CHAPTER 1. LESSONS FROM THE RECENT BUSINESS CYCLE ............. 29
CHAPTER 2. THE MANUFACTURING SECTOR ........................... 53
CHAPTER 3. THE YEAR IN REVIEW AND THE YEARS AHEAD ............. 83
CHAPTER 4. TAX INCIDENCE: WHO BEARS THE TAX BURDEN? .......... 103
CHAPTER 5. DYNAMIC REVENUE AND BUDGET ESTIMATION ............. 117
CHAPTER 6. RESTORING SOLVENCY TO SOCIAL SECURITY ............. 129
CHAPTER 7. GOVERNMENT REGULATION IN A FREE-MARKET
SOCIETY .................................................... 149
CHAPTER 8. REGULATING ENERGY MARKETS ......................... 157
CHAPTER 9. PROTECTING THE ENVIRONMENT ........................ 173
CHAPTER 10. HEALTH CARE AND INSURANCE ........................ 189
CHAPTER 11. THE TORT SYSTEM .................................. 203
CHAPTER 12. INTERNATIONAL TRADE AND COOPERATION .............. 223
CHAPTER 13. INTERNATIONAL CAPITAL FLOWS ...................... 239
CHAPTER 14. THE LINK BETWEEN TRADE AND CAPITAL FLOWS ......... 253
APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2003 ............ 265
APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION ................................. 277

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*For a detailed table of contents of the Council's Report, see page 9


ECONOMIC REPORT
OF THE PRESIDENT



ECONOMIC REPORT OF THE PRESIDENT

To the Congress of the United States:

As 2004 begins, Americaï¿½s economy is strong and getting stronger.
Over the past several years, this Nation has faced major economic
challenges resulting from the decline of the stock market beginning
in early 2000, a recession that began shortly after, revelations
about corporate governance scandals, slow growth among many of our
major trading partners, terrorist attacks, and the war against
terror, including in Afghanistan and Iraq. These challenges
affected business and consumer confidence and resulted in hardship
for people in many industries and regions of our Nation. Americans
have responded to each challenge, and now we have the results:
renewed confidence, strong growth, new jobs, and a mounting
prosperity that will reach every corner of America.
This Report, prepared by my Council of Economic Advisers,
describes the economic challenges we faced, the actions we took,
and the results we are seeing. It also discusses our plan to
continue growing the economy and creating jobs.
In May 2003, I signed a Jobs and Growth bill that focused on three
key goals. First, we accelerated previously passed tax relief and
let American households keep more of their own money to save,
invest, and spend. Second, we increased incentives for small
businesses to invest in new equipment and plant expansions. Third,
we enacted important tax relief on dividend income and capital
gains to help investors and businesses. These actions were designed
to promote investment, job creation, and income growth. By all
three measures of performance, we are seeing signs of success.
Since May 2003, we have seen the economy grow at its fastest pace
in nearly 20 years. Consumers and businesses have gained confidence.
Retail sales are strong, and Americans are buying, building, and
renovating houses at a record pace. Investment has strengthened,
with spending on business equipment the best in 5 years. The
unemployment rate has fallen from its peak of 6.3 percent last June
to 5.7 percent in December, and employment is beginning to rise as
new jobs are created, especially in small business. Productivity
growth has been strong, leading to higher incomes for workers, while
the tax relief we passed means that American families keep more of
their money instead of sending it to Washington.
We are moving in the right direction, but have more to do. I will
not be satisfied until every American who wants a job can find one.
I have outlined a six-point plan to promote job creation and strong
economic growth. This plan includes initiatives to help manage rising
health care costs to make health care more affordable and accessible
for American workers and families; reduce the burden of junk lawsuits
on the economy; ensure a reliable and affordable energy supply;
simplify and streamline government regulations; open foreign markets
for American goods and services; and allow businesses and families
to keep more of their hard-earned money and plan with confidence by
making our tax relief permanent. This year, I will work with the
Congress to achieve these goals.
I will also continue to work with the Congress on another important
shared goal: controlling federal spending and reducing the deficit.
The federal budget is in deficit, foremost because of the economic
slowdown and then recession that began in 2000 and the additional
costs of fighting the war on terror and protecting the homeland.
We are continuing to take action to restrain spending and bring
the deficit down. By carefully evaluating priorities and being
good stewards of the taxpayerï¿½s money, we will cut the budget
deficit in half over the next five years.
The task of reducing the deficit will become easier because America's
economy is growing. We have taken the actions needed to restore
growth, and we are pursuing additional policies to help create jobs
for American workers and families. I'm optimistic about the future
of our economy because I know the values of America and the decency
and entrepreneurial spirit of our people.




THE WHITE HOUSE
FEBRUARY 2004







THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS











LETTER OF TRANSMITTAL

Council of Economic Advisers,
Washington, D.C., January 30, 2004
Mr. President:
The Council of Economic Advisers herewith submits its 2004 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,



N. Gregory Mankiw
Chairman





Kristin J. Forbes
Member




Harvey S. Rosen
Member