NEW YORK (CNN/Money) - In his annual State of the Union speech Tuesday night, President Bush trumpeted the recent strength of the U.S. economy and promised to cut the federal budget deficit in half in five years, even as he announced several government programs and called for making recent tax cuts permanent.
In describing the state of the economy in his speech, Bush noted the 8.2-percent annualized growth rate in gross domestic product (GDP) in the third quarter of 2003, the fastest pace since the fourth quarter of 1983, and gave much of the credit to the tax cuts enacted during his term.
|President Bush looks out over Congress during Monday's State of the Union address.
"Americans took those dollars and put them to work, driving this economy forward," Bush said.
Sen. Tom Daschle, D-S.D., in the Democratic response to the speech, noted that the economy had added just 1,000 new non-farm payroll jobs in December and that more than 2.4 million non-farm payroll jobs have been lost since February 2001.
"Economic strength is not measured in profit statements, but in jobs," Daschle said.
Bush has promised that tax cuts will eventually grow more jobs, and in his speech he urged Congress to make the tax cuts, which are set to expire by 2011, permanent, saying that to allow them to lapse would be the same as raising taxes.
He also promised to cut the federal budget deficit -- which is expected to reach its highest level in history this year -- in half in five years, in part by holding discretionary spending to less than 4 percent this year.
Here's a closer look at Bush's proposals.
Extend the tax cuts
Bush pressed hard for making permanent the tax cuts Congress passed in 2001, 2002 and 2003 -- a proposal that is likely supported by some businesses and some lawmakers seeking reelection.
Pointing to recent strength in the economy, Bush said, "American people are using their money far better than government would have, and you were right to return it." Later saying, "What Congress has given the Congress should not take away. For the sake of job growth, the tax cuts you passed should be permanent."
But such a move could carry a hefty price tag.
Despite Bush's projection that the deficit could be cut in half in five years' time, there are many competing forecasts.
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.
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.
In the speech, Bush proposed a personal retirement account into which people could direct part of their Social Security taxes.
Various forms of partial privatization have been floated before, however, and have always proven controversial. 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.
Bush cast many of his proposals as important for job creation. "For the sake of job growth, the tax cuts...should be permanent," he said. He also pushed "free and fair trade" to create jobs.
As part of his Jobs for the 21st Century campaign, he offered several specific proposals for worker training, including assistance to middle- and high-school students, bigger Pell Grants and support for community colleges.
Bush also proposed plans to bolster health-care coverage, touting recent Medicare reform and a medical savings accounts that enables tax-free savings for health care expenses.
In addition, he proposed tax credits to help individuals cover the cost of insurance; a plan that would let small-businesses band together to reduce the cost of insuring their employees; and making premiums for catastrophic medical insurance fully tax deductible.
Bush also called for legislation that would "modenize our electricity system, promote conservation and make America less dependent on foreign sources of energy." The last such measure included tax breaks and other incentives, but it was hotly disputed and died after a bitter fight last year.
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Bush also repeated 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.