[Economic Report of the President (2005)]
[Administration of George W. Bush]
[Online through the Government Printing Office, www.gpo.gov]


 
Economic Report
of the President



Transmitted to the Congress
February 2005



together with
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS


UNITED STATES GOVERNMENT PRINTING OFFICE

WASHINGTON : 2005

--------------------------------------------------------------------

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CONTENTS

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Page

ECONOMIC REPORT OF THE PRESIDENT ................................  1

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* ..............  7

CHAPTER 1. THE YEAR IN REVIEW AND THE YEARS AHEAD ............... 31

CHAPTER 2. EXPANSIONS PAST AND PRESENT .......................... 49

CHAPTER 3. OPTIONS FOR TAX REFORM ............................... 71

CHAPTER 4. IMMIGRATION .......................................... 93

CHAPTER 5. EXPANDING INDIVIDUAL CHOICE AND CONTROL .............. 117

CHAPTER 6. INNOVATION AND THE INFORMATION ECONOMY ............... 135

CHAPTER 7. THE GLOBAL HIV/AIDS EPIDEMIC ......................... 155

CHAPTER 8. MODERN INTERNATIONAL TRADE ........................... 173

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2004 ................. 189

APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION ..................................... 201


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* For a detailed table of contents of the Council's Report, see page 11



ECONOMIC REPORT
OF THE PRESIDENT



To the Congress of the United States:

The United States is enjoying a robust economic expansion because of
the  good policies we have put in place and the strong efforts of
America's workers and entrepreneurs. Four years ago, our economy was
sliding into recession. The bursting of the high-tech bubble,
revelations of corporate scandals, and terrorist attacks hurt our
economy, leading to falling incomes and rising unemployment.
We acted by passing tax relief so American families could keep more
of their own money. At the same time, we gave businesses incentives to
invest and create jobs. Last year, we gained over 2 million new jobs,
and the economy's production of goods and services rose by 4.4 percent.
The unemployment rate is now 5.2 percent, which is lower than the
average of each of the past three decades and the lowest since the
attacks of September 11, 2001. Our pro-growth policies are taking us
in the right direction.
As I start my second term, we must take action to keep our economy
growing. I will not be satisfied until every American who wants to
work can find a job. I have laid out a comprehensive strategy to
sustain growth, create jobs, and confront the challenges of a changing America.
I am committed to restraining spending by eliminating government
programs that do not work and by making government provide important
services more efficiently. I have pledged to cut the deficit in half by
2009, and we are on track to do so.
The greatest fiscal challenges we face arise from the aging of our
society.  Because Americans are having fewer children and living
longer, seniors are becoming a larger proportion of the population.
This change has important implications for the Social Security system,
because the benefits paid to retirees come from taxes on today's
workers. In 1950, there were 16 workers paying into Social Security
for every person receiving benefits. Now there are just over 3, and
that number will fall to 2 by the time today's young workers retire.
We will not change Social Security for those now retired or nearing retirement. We need to permanently fix the Social Security system for
our children and grandchildren. I will work with the Congress to fix
Social Security for generations to come.
The current tax code is a drag on the economy. It discourages saving
and investment, and it requires individuals and businesses to spend
billions of dollars and millions of hours each year to comply with the complicated system. I will lead a bipartisan effort to reform our tax
code to make it simpler, fairer, and more pro-growth.
We are working to make health care more affordable and accessible
for American families. The Medicare modernization bill I signed gives
seniors more choices and helps them get the benefits of modern
medicine and prescription drug coverage. We have created health
savings accounts, which give workers and families more control over
their health care decisions. We will open or expand more community
health centers for those in need. To help control health costs and
make health care more accessible, we must let small businesses pool
risks across states so they can get the same discounts for health
insurance that big companies get. We will increase the use of health information technology that will make health care more efficient, cut
down on mistakes, and control costs.
Our litigation system encourages junk lawsuits and harms our economy,
and the system must be reformed. I support medical liability reform to
control the cost of health care, keep good medical professionals from
being driven out of practice, and ensure that patient care--not
avoidance of lawsuits--is the central concern in all medical decisions.
I support class action reform to eliminate the waste, inefficiency,
and unfairness of the class-action system. And I support reforms to
the asbestos litigation system in order to protect victims with
asbestos-related injuries and prevent frivolous lawsuits that harm our
economy and cost jobs.
I will continue to push for energy legislation to help keep our
economy strong. We must modernize our electricity system to make it
more reliable. To make our energy supply more secure, we must explore
for more energy in environmentally friendly ways in our own country,
develop alternative sources of energy, and encourage conservation.
I will work to further simplify and streamline federal regulations
that hinder growth and encumber our job creators. Our economy needs to
allow entrepreneurs to spend more time doing business and less time
with their lawyers and accountants.
I believe that Americans benefit from open markets and free and fair
trade, and I am working to open up markets around the world and make
sure that the playing field is level for our workers, farmers,
manufacturers, and other job creators.  In the past four years, we
concluded free-trade agreements with Singapore, Chile, Australia,
Morocco, Bahrain, Jordan, and six countries in Central America and the Caribbean. My Administration will continue to work to expand trade on a multilateral, regional, and bilateral basis, and to enforce our trade
laws to help ensure a level playing field.
I have a plan to prepare our young people for the jobs of the 21st
century. We have brought greater accountability to our public schools
and are working to improve our high schools. We have made Pell grants available to one million more students, and we will work to make
college more affordable by increasing the size of Pell grants for
low-income students. We are reforming our workforce training programs
to help Americans obtain the skills needed for the jobs that our
economy is creating.
I have an ambitious agenda for the next four years. During my first
term, working with the Congress, I put policies in place to ensure a
rapid recovery and to support strong growth. In my second term,
together we will cut the budget deficit in half, fix Social Security,
reform the tax code, reduce the burden of junk lawsuits, ensure a
reliable and affordable energy supply, continue to promote free and
fair trade, help make health care affordable and accessible for
American families, and expand the quality and availability of
educational opportunities. These policies will produce an economic
environment that continues to unleash the creativity and energy of
the American people.



THE WHITE HOUSE
FEBRUARY 2005





THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS



LETTER OF TRANSMITTAL

Council of Economic Advisers,
Washington, D.C., February 11, 2005

Mr. President:

The Council of Economic Advisers herewith submits its 2005 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