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


 
CONTENTS
Page

overview ......................................................... 17
chapter 1. the year in review and the years ahead ................ 31
Developments in 2004 and the Near-Term Outlook ................... 31
Consumer Spending ........................................ 33
Residential Investment ................................... 34
Business Fixed Investment ................................ 34
Business Inventories ..................................... 35
Government Purchases ..................................... 36
Exports and Imports ...................................... 36
Employment ............................................... 38
Productivity ............................................. 39
Wages and Prices ......................................... 39
Financial Markets ........................................ 42
The Long-Term Outlook Through 2010 ............................... 42
Growth in GDP over the Long Term ......................... 43
Interest Rates over the Long Term ........................ 47
The Composition of Income over the Long Term ............. 47
Conclusion ....................................................... 48
chapter 2. expansions past and present ........................... 49
Overview of the Current Expansion ................................ 50
Consumption .............................................. 51
Investment ............................................... 52
Exports .................................................. 53
Labor Market ............................................. 54
Summary .................................................. 56
Symmetry in Recessions and Expansions ............................ 57
Real GDP ................................................. 57
Components of Real GDP ................................... 58
The Labor Market ......................................... 58
A Possible Explanation: The Financial Accelerator ........ 59
Summary .................................................. 61
Stabilization Policy ............................................. 61
Business Cycles: Causes .................................. 61
Economic Policy .......................................... 62
Policy Design: Challenges ................................ 63
Fiscal Policy ............................................ 64
Monetary Policy .......................................... 67
Conclusion ....................................................... 70
chapter 3. options for tax reform ................................ 71
Why Do We Need Tax Reform? ....................................... 71
The Direct Burden of the Tax System: Taxes Paid .......... 71
High Compliance Costs .................................... 73
Effects on Behavior and Excess Burden .................... 74
Income Taxation Versus Consumption Taxation ...................... 77
Fairness ................................................. 78
Effects on Growth of the Economy ......................... 80
Simplification ........................................... 82
Tax Reform Prototypes ............................................ 82
Consumption Tax Prototypes ............................... 82
Reform Within the Current System ......................... 87
Conclusion ....................................................... 91
chapter 4. immigration ........................................... 93
Immigration and Economic Growth .................................. 94
Immigrants and Employment Growth ......................... 94
Immigrants and Regional Growth ........................... 95
How Many Immigrants? ..................................... 96
Legal and Illegal Immigrants ............................. 96
From Which Tempest-Tossed Shores? ........................ 97
Immigrant Education and Earnings ......................... 99
The Role of Labor Market Institutions ........................... 100
Institutions and Immigrant Unemployment ................. 101
Benefits and Costs of Immigration ............................... 104
Labor Market Impact of Immigration ...................... 104
Fiscal Impact of Immigration ............................ 106
Immigrants and Public Assistance ........................ 107
Immigrants and Social Security .......................... 108
Additional Benefits to Immigration ...................... 108
Immigration Policy .............................................. 109
Current U.S. Immigration Policy ......................... 110
Employment-Based Immigration ............................ 111
Undocumented Immigration ................................ 113
Conclusion ...................................................... 115
chapter 5. expanding individual choice and control .............. 117
The Meaning of Property Rights .................................. 118
The Economic Effects of Property Rights ......................... 118
The Success of Property Rights in Addressing Policy Issues ...... 121
Addressing Air Pollution Through Tradable Permits ....... 122
Addressing Overfishing Through Property Rights .......... 123
School Voucher Programs ................................. 125
The Application of Property Rights to Current Policy Issues ..... 127
Personal Retirement Accounts ............................ 127
Health Savings Accounts ................................. 129
Millennium Challenge Accounts ........................... 130
Conclusion ...................................................... 133
chapter 6. innovation and the information economy ............... 135
Growth of the Information Economy ............................... 136
Growth in Computer and Internet Use ..................... 136
Illegal Acts on the Internet ............................ 141
Competition Versus Economic Regulation .......................... 142
Telephone Service: A Natural Monopoly? .......................... 146
Long-Distance Services .................................. 146
Mobile Wireless Telephone Services ...................... 147
Talking on the Internet: Voice over Internet Protocol ... 149
Realizing the Promise of Broadband .............................. 150
Universal, Affordable Access to Broadband ............... 150
Conclusion ...................................................... 153
chapter 7. the global hiv/aids epidemic ......................... 155
A Global Crisis ................................................. 156
Disease Characteristics and Treatments .......................... 157
The Economic Impact of HIV/AIDS ................................. 159
Direct Economic Impacts on Households ................... 159
Indirect Economic Impacts on Households ................. 161
Macroeconomic Impacts ................................... 162
Getting Prevention, Treatment, and Care to the Field ............ 162
A Role for Differential Pricing ......................... 164
Humanitarian Aid ........................................ 165
Development of New Treatments and Vaccines ...................... 167
Incentives for Innovation ............................... 167
Conclusion ...................................................... 171
chapter 8. modern international trade ........................... 173
Free Trade: Beyond the Basics ................................... 173
Globalization and the Terms of Trade .................... 174
The Impact of Trade on Labor Markets .................... 176
The U.S. Advantage in Services Trade .................... 178
Foreign Direct Investment: An Increasingly Important Part of Trade 179
The Global Supply Chain and FDI ......................... 180
How Inward FDI Strengthens Domestic Firms ............... 181
Encouraging FDI ......................................... 181
Achievements in Trade Negotiations .............................. 182
Trade with China ........................................ 182
Intellectual Property Rights ............................ 184
Trade Liberalization .................................... 186
Conclusion ...................................................... 188


APPENDIXES
A.  Report to the President on the Activities of the Council of
Economic Advisers During 2004 .............................. 189
B.  Statistical Tables Relating to Income, Employment,
and Production ............................................. 201

LIST OF TABLES
1-1.	Administration Forecast .................................. 43
1-2.	Accounting for Growth in Real GDP, 1953-2010 ............. 45
3-1.	Sources of Federal Revenues, Fiscal Year 2005 ............ 72
3-2.	Comparison of Tax Revenues: United States, G-7, and
OECD, 2002 .............................................. 72
4-1.	Foreign-Born Share of Employment Growth by Occupational
Category, 1996 to 2002 .................................. 95
4-2.	Median Weekly Earnings by Educational Attainment, 2003 .. 100

LIST OF CHARTS
1-1.	Real and Nominal Price of West Texas Intermediate
Crude Oil ................................................ 33
1-2.	Investment Growth and the Acceleration of Nonfarm
Business Output ......................................... 35
1-3.	Saving, Investment, and the Current Account Balance ...... 37
1-4.	Labor Productivity, Nonfarm Business Sector .............. 39
1-5.	Inflation and Inflation Expectations ..................... 41
1-6.	Okunï¿½s Law Estimation of Potential GDP Growth ............ 44
2-1.	Real Gross Domestic Product .............................. 50
2-2.	Real Personal Consumption Expenditures ................... 51
2-3.	Real Nonresidential Investment ........................... 52
2-4.	Real Residential Investment .............................. 53
2-5.	Real Exports of Goods and Services ....................... 54
2-6.	Nonfarm Payroll Employment ............................... 55
2-7.	Nonfarm Business Productivity ............................ 56
2-8.	Recessions and Expansions: Real GDP ...................... 57
2-9.	Recessions and Expansons: Nonfarm Payroll Employment ..... 59
2-10.	Growth in Personal Income During Expansion Years,
Before and After Taxes .................................. 65
2-11.	Real Government Spending (Consumption and Gross
Investment) ............................................. 66
2-12.	The Real and Nominal Federal Funds Rate .................. 68
2-13.	Real GDP Growth .......................................... 69
3-1.	Share of Federal Taxes With and Without Tax Cuts, 2004 ... 78
3-2.	Effective Federal Tax Rates With and Without Tax Cuts, 2004.  79
3-3.	Percent Reductions in Total Federal Taxes, 2004 .......... 79
4-1.	Foreign-Born Share of Employment Growth by Census
Division, 1996 to 2003 .................................. 96
4-2.	Number and Share of Foreign-Born in U.S. Population,
1850--2003 .............................................. 97
4-3.	Foreign-Born Population by Immigrant Status, 2003 ........ 98
4-4.	Foreign-Born Population by World Region of Birth, 2003 ... 98
4-5.	Educational Attainment, 2003.............................. 99
4-6.	Male Unemployment Rate by Nativity, 2000-2001 ........... 103
4-7.	Youth Unemployment Rate by Nativity, 2000 ............... 103
6-1.	Growth in Gross Domestic Product Due to the Information
Technology Sector ...................................... 137
6-2.	Business-to-Consumer E-Commerce ......................... 138
6-3.	Business-to-Business E-Commerce ......................... 140
6-4.	U.S. Wireline and Mobile Wireless Telephone Service ..... 148
6-5.	Average Price Per Minute of Mobile Wireless Telephone
Service ................................................ 148
7-1.	Estimated HIV Infection Levels, 2003 .................... 157
7-2.	Changes in Life Expectancy, 1960 to 2002 ................ 158
7-3.	Agricultural Labor Force Loss Due to HIV/AIDS, 2000
and 2020 ............................................... 160
8-1.	Imports and the Unemployment Rate, 1960-2004 ............ 176
8-2.	Trade in Business, Professional, and Technical Services . 178
8-3.	U.S. Imports of Goods ................................... 185

LIST OF BOXES
1-1.	Oil Prices and the Economy ............................... 32
1-2.	Okun's Law ............................................... 44
2-1.	Is the Economy More Stable? .............................. 69
3-1.	Complexity of the Current System ......................... 73
3-2.	The Initial Effects of the 2003 Reductions in Tax Rates on
Dividends ............................................... 76
3-3.	What Is the Current Distribution of the Tax Burden? ...... 78
3-4.	The Equivalence of Sales Taxes and Value Added Taxes ..... 83
4-1.	Wage Impacts of Immigration ............................. 106
5-1.	The Benefits of Homeownership ........................... 119
5-2.	The Benefits of Land Titles ............................. 131
6-1.	Airline Computer Reservation Systems .................... 139
6-2.	Satellite Television .................................... 145
7-1.	Uganda's Success Story .................................. 166
7-2.	Creative Ways to Encourage Innovation ................... 168