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The state of the Bush economy
In speech, Bush to tout stronger economy, promise jobs -- but also to raise controversial proposals.
January 20, 2004: 5:03 PM EST
By Mark Gongloff, CNN/Money staff writer

NEW YORK (CNN/Money) - In his annual State of the Union speech Tuesday night, President Bush will likely spend time trumpeting the recent strength of the U.S. economy, and he will also float several new economic policy proposals.

In the process, he is likely to draw criticism from Republicans and Democrats alike.

In describing the state of the economy in his speech, scheduled to begin at about 9:00 PM ET, Bush will likely highlight the 8.2-percent annualized growth rate in gross domestic product (GDP), the broadest measure of the economy, in the third quarter of 2003, the fastest pace since the fourth quarter of 1983.

When it comes to jobs, however, Bush will have to perform a careful dance, with 2.4 million jobs lost since Febuary 2001, a month after he took office.

Bush will likely argue that tax cuts he pushed to passage last year will eventually create jobs. In support, he can point to non-farm payrolls that have grown by 278,000 jobs since July, the best stretch of job growth since late 2000.

In addition, some economists hope that number of new jobs will be revised upward in coming months, as the Labor Department may belatedly count thousands of self-employed workers and employees of start-up companies.

Still, when arguing for the tax cuts, the Bush administration promised they would create about 300,000 jobs every month, beginning in July 2003 -- most economists doubt last year's numbers will be revised that dramatically.

And an Economy.com study last year found the tax cuts added less than two percentage points to GDP growth in the third quarter, suggesting most of the economy's growth was due to pent-up demand after the first months of the war in Iraq.

Nevertheless, the tax cuts were clearly of some benefit. And Bush is expected to push in his speech for making those cuts, which are set to expire by 2011, permanent, along with other proposals.

Here's a round-up of what to expect.

Extend the tax cuts

Bush has already pressed for making permanent, or at least extending, the tax cuts Congress passed in 2001, 2002 and 2003 -- a proposal that is likely supported by some businesses and some lawmakers seeking reelection.

"[B]usiness leaders and owners will tell you that if there's uncertainty in the tax code, it will make it difficult for them to plan for the future," Bush said earlier this month. "Permanency in the tax code will mean more job creation."

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But such a move could carry a hefty price tag.

If the tax cuts are made permanent, the accumulated budget deficit for the years 2004 to 2013 could exceed $5 trillion, according to separate studies by the liberal Center on Budget and Policy Priorities, the sometimes-liberal Brookings Institution, forecasting firm Decision Economics, and Goldman Sachs.

If the cuts aren't made permanent, the accumulated deficit for 2004-2013 is forecasted to be $1.4 trillion, according to the Congressional Budget Office.

The Brookings study, and others, have warned that massive budget deficits could push interest rates higher and hurt the economy.

Bush could also introduce new tax breaks -- albeit small ones -- including one that would encourage private savings. (see more)

Immigration

Bush could also repeat his proposal to offer millions of illegal immigrants temporary legal status. The proposal is popular with some businesses, who say they are unable to find American workers to do the hard jobs many immigrants are willing to do.

But it's been unpopular with many liberals, who say it will only slow down wage growth and weaken job security for all workers, and with some conservatives, who worry that the proposal will lead to a flood of immigrants, pushing up government spending on benefits for the workers and increasing the chances that terrorists will enter the country.

Health care

Bush will also likely propose some plans to bolster health-care coverage, possibly including making health expenses tax deductible for lower-income Americans or offering assistance to the uninsured.

Such proposals will likely be popular among Democrats and many Republicans, though some conservatives -- already unhappy with the growth of spending under Bush -- might protest.

Social Security privatization

Few would disagree that the Social Security system has some challenges ahead of it, especially when Baby Boomers begin to retire later in the decade. One recent study suggested the total shortfall in existing Social Security and Medicare obligations already exceeds $44 trillion.

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Bush and other Republicans have often discussed the idea of amending the Social Security program to allow some workers to invest their Social Security money in the stock market through private accounts. After robust stock-price gains in 2003, now would seem to be an opportune time to raise the issue again.

This proposal has always proven controversial, however. And recent Social Security trustees' studies have warned privatization will hurt the federal budget, at least in the short term, by redirecting payroll taxes to private accounts rather than to the government, meaning Democrats could argue the plan is fiscally irresponsible.

Energy bill

Bush may also call for a national energy plan that encourages more exploration and development to help keep energy costs low, according to a recent Chicago Tribune report. The last such measure included tax breaks and other incentives, but it was hotly disputed and died after a bitter fight last year.

Mars, marriage and more

Bush will also propose establishing a base on the moon and sending a manned mission to Mars. In order to accomplish these goals, he'll propose adding just $1 billion to the budget for the National Aeronautics and Space Administration (NASA), while redirecting about $11 billion in NASA's existing budget to the projects.

But many experts doubt these missions could be achieved at such a low cost, and the proposals have met with criticism from liberals -- many of whom want to spend the money on problems here on Earth -- and conservatives -- many of whom don't want to spend the money at all.

Meanwhile, Bush could also discuss earmarking $1.5 billion in federal money to encourage people to get married -- another proposal that has met with much criticism from both sides of the aisle.

And the Boston Globe recently reported that Bush may ask for $3.2 billion to pay for federal Pell grants for low- and middle-income students.

That idea, along with a possible proposal to pay for worker training, could be among the most popular of Bush's proposals. But, taken with all the other spending proposals, it could draw more criticism from conservative groups, some of whom are already angry at Bush for, they say, breaking a campaign promise to keep government spending under control.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.