Message to Congress Transmitting the Economic Report of the President

To the Congress of the United States:

The American economy has consistently proven its strength and resilience in the face of shocks such as natural disasters, high energy prices, and the terrorist attacks of September 11. The economy experienced 6 years of uninterrupted expansion, which included a record stretch of 52 consecutive months of job creation. The past year saw this growth cease as several forces that developed over many years in the credit and housing markets converged. The combination of these factors, coupled with a sustained period of rising energy prices, was sufficient to threaten the entire financial system and generated a shock so large that its effects have been felt throughout the global economy.

Under ordinary circumstances, it would be preferable to allow the free market to take its course and correct over time. But the Government has a responsibility to safeguard the broader health and stability of our economy. Under the extraordinary circumstances created by the financial crisis, the potential damage to American households and businesses was so severe that a systemic, aggressive, and unprecedented Government response was the only responsible policy option.

The actions taken by my Administration in response to the financial crisis have laid the groundwork for a return to economic growth and job creation, and they are beginning to show some early results. A measure of stability has returned to the financial system. There will, of course, continue to be challenges. Temporary Government programs must remain temporary and be unwound in an orderly manner as soon as conditions warrant. Financial regulations must be modernized to reflect the realities of the 21st century, and these efforts should ensure that the objective of protecting consumers and investors does not come at the expense of the flexibility required for innovations to come to the market. We must also continue to trust Americans with the responsibility of homeownership and empower them to weather turbulent times in the market by helping creditworthy homeowners avoid foreclosure.

As the country navigates through this trying period, we must never lose sight of the enormous benefits delivered by the free enterprise system. Americans have good reasons to be confident about the long-term health of our economy. Despite the current difficulties, there are a number of positive economic factors. Inflationary pressures have moderated as record high prices for oil and gasoline have retreated. Productivity growth, which helps to increase our standard of living and improve our international competitiveness, remains solid. The American economy continues to be the largest and most dynamic in the world, and its solid foundation of flexible labor markets, low tax rates, and open trade and investment policies all contribute to its ability to recover fairly quickly from shocks. Over the past 8 years, my Administration has worked to strengthen this foundation by adopting pro-growth, market-oriented policies, and our policies will position the economy for a strong rebound and continued long-run growth.

Sound economic policy begins with keeping taxes low. The tax relief enacted by my Administration was the largest in a generation. Tax rates have been lowered for every American who pays income taxes. More than 13 million Americans had their Federal income tax liability completely eliminated, and individuals and businesses have kept $1.7 trillion of their own hard-earned money. Raising taxes at any time reduces our international competitiveness and further distorts the decisions of individuals and businesses; doing so in the current environment would have serious consequences for the economy. This tax relief has been a key factor in promoting the economic growth and job creation of recent years, and it should be made permanent. Unless the Congress acts, most of the tax relief that we have delivered over the past 8 years will be taken away, and 116 million American taxpayers will see their taxes rise.

The Government also has a responsibility to spend the taxpayers' money wisely. Over the course of my Administration, the rate of growth in nonsecurity discretionary spending has steadily decreased from more than 16 percent in 2001 to below the rate of inflation today. While the financial crisis has required significant taxpayer investments that will increase the budget deficit, we expect that most or all of those investments will be paid back to taxpayers over time. The greatest challenge to the fiscal health of the country remains the unsustainable growth in entitlement programs such as Social Security, Medicare, and Medicaid. I have laid out responsible, innovative solutions to address these challenges, which will otherwise only grow more difficult to solve over time. The Congress has an obligation to confront these issues.

Government does have a role to play in health care, but a robust private market is critical to ensuring that health care is affordable and accessible for all Americans. My Administration has sought to balance public and private roles in health care with market-oriented policies that increase the efficiency of health care delivery, encourage competition, and leave decisions in the hands of individuals and their doctors. For example, enactment of the Medicare prescription drug benefit program has provided more than 40 million Americans with better access to prescription drug coverage, expanded competition in Medicare, trusted consumers to make their own health care decisions, and the costs have been much lower than originally estimated. The introduction of Health Savings Accounts has also provided consumers with greater access to affordable health care plans. There is much more that can be done to improve health care, such as adopting medical liability reform, eliminating the bias in the tax code against those who do not receive health insurance through their employers, and increasing the power of small employers, civic groups, and community organizations to negotiate lower-priced health premiums. These policies would help reduce frivolous lawsuits that increase patients' costs, promote the use of health savings accounts, and encourage competition among health plans across State lines.

To be competitive in the global marketplace, the United States must remain open to international trade and investment and reject the false promise offered by protectionist policies. American workers and businesses can compete with anyone in the world, as evidenced by the remarkable performance of American exports in recent years. When I took office, the United States had free trade agreements (FTAs) in force with only three countries. Today, we have FTAs in force with 16 countries. I thank the Congress for its approval of these agreements and strongly encourage prompt approval of the agreements with Colombia, Panama, and South Korea that will benefit our country. These agreements will provide greater access for our exports, support good jobs for American workers, and promote America's strategic interests. We also have an unprecedented opportunity to reduce barriers to global trade and investment through a successful conclusion to the World Trade Organization Doha Round negotiations. In addition, the Congress should reauthorize and reform trade adjustment assistance so that we can help those workers whose jobs are displaced to learn new skills and find new jobs.

The rapid increase in energy prices in the past year exposed just how dependent our economy is on oil. We must continue taking steps to increase our energy security. The Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 were major steps toward this goal, but in the short term, our country will continue to rely on fossil fuels for most of its energy supply. I am pleased that the Congress recognized this reality and agreed to remove restrictions that will allow responsible oil and gas exploration on the Outer Continental Shelf and expanded access to oil shale to help meet America's energy needs. In the long run, our energy security will require advances in clean and renewable energy technologies. My Administration has worked to reduce gasoline consumption and promote alternative fuels to transform the way Americans power their cars and trucks. We have also worked to develop cleaner energy sources to power Americans' homes and places of work, such as clean coal, nuclear, solar, and wind power. At home, we are on the path to slow, stop, and eventually reverse the growth of greenhouse gas emissions, but substantial reductions in global greenhouse gas emissions are only possible with the concerted action of all countries. The Major Economies Process launched by my Administration in 2007 has brought all major economies together to discuss a common approach to a global climate agreement that includes the meaningful participation of all major economies.

The creativity, ingenuity, and resourcefulness of the American people is our country's greatest strength, and a vibrant education system is key to maintaining our Nation's competitive edge and extending economic opportunity to every citizen. Workers who invest in their education and training enjoy higher incomes and greater job security. The No Child Left Behind Act has succeeded in bringing greater accountability to schools, and the results are clear; as one example, African American and Hispanic students are posting all-time high scores in a number of categories. The Congress should reauthorize this vital law, and our Nation must continue to demand results and accountability from our educational system. To be competitive in the global economy, American workers also need to continually update their skills. To that end, my Administration has invested nearly $1 billion in new job training initiatives to ensure our workforce has the skills required of 21st century jobs. We have also nearly doubled support for Pell Grants to help millions of low-income Americans afford college tuition. The technological innovation that drives our global economic leadership depends on continued scientific discoveries and advancements, and I am pleased that the Congress authorized the doubling of basic research in key physical science and engineering agencies as I proposed in my American Competitiveness Initiative (ACI). I urge the Congress to appropriate these ACI funds promptly to help sustain our economy's long-term competitive position.

Many of these issues are discussed in the 2009 Annual Report of the Council of Economic Advisers. The Council has prepared this Report to help policymakers understand the economic conditions and issues that underlie my Administration's policy decisions. Free market policies have lifted millions of people out of poverty and given them the opportunity to build a more hopeful life. By continuing to trust the decisions of individuals and markets and pursuing pro-growth policies, Americans can be confident that the economy will emerge stronger than ever from its current challenges, with greater opportunity for prosperity and economic growth.

GEORGE W. BUSH

THE WHITE HOUSE

JANUARY 2009