Facts on the Economy and the President’s Budget

John S. Irons, Ph.D.

February 25, 2005

Overview

Current Situation: Failed Economic Policy

Wrong Choices on the Budget

The Economy – Middle Class is Struggling Median household income has fallen by over $1,500 between 2000 and 2003;

Wages are stagnating: in 2004 real hourly wages of production, non-supervisory

workers declined for the first time since 1993;

The number of uninsured has increased: in 2003 there were an estimated 45

million people who lack health insurance;

At under 2 percent, the private saving rate is near historic lows;

Bankruptcy has increased: in 2004 there were over 1.5 million non-business

bankruptcy filings, an increase of over 300,000 since 2000, and middle-class

Americans, especially the elderly, are increasingly in debt.

The Economy – Macro Overall growth has been lackluster: the average rate of growth of real GDP

was just 2.5 percent over the last 4 years – which is lower than under the terms of Clinton, Reagan, and even Carter;

Job growth has been weak, over the 4 years of the Bush presidency the economy added just 119,000 new jobs, well below the level needed to keep up with population growth, and well below that of any other president since Hoover;

The dollar is falling, especially against the euro. In late 2004, the dollar fell to all-time lows relative to the euro;

Debt to foreign countries is increasing – over the first 11 months of 2004, US federal government debt to foreign holders has increased by $362 billion. Nearly half of this increase came from Japan and China;

The federal deficit is over $400 billion for the second year in a row, and shows no real signs of decreasing significantly under Bush’s economic policy;

Economy - Poverty

Poverty is up by 1.2 percent from 2000 to 2003.

Comparison with Past Recoveries - GDP

Comparison with Past Recoveries - Investment

Comparison with Past Recoveries - Employment

The Budget – Wrong Choices

The president’s 2006 budget, as well as his economic policy more generally, has done nothing to stem these troubling trends. In fact, current policies are exacerbating these problems.

Tax policy has overwhelmingly benefited people with very high incomes and wealth;

The president is proposing slashing investments and services that all Americans rely upon;

The presidents economic proposals lack compassion

Tax Policy Those with incomes of $1 million will receive a $150,000+ tax cut;

Taxes on income from wealth have been reduced, and the tax system is increasing relying upon taxes on work.

• Over half of capital income subject to preferential treatment goes to those making more than $1 million a year;

The cost of extending the 2001 and 2003 tax cuts is $2.1 trillion over 10 years;

• only $1.6 trillion of these and other tax costs were included in the president’s budget; (e.g. AMT fix not included)

The cost of eliminating the estate tax is $256 billion over 10 years.• Only impacts millionaires and in which the first $1.5 million is tax free. Only 1.25

percent of decedents pay any tax (based on 2003 tax filings.)

• Cost charities and other nonprofits over $10 billion per year in lost donations.

Slashing Investments and Services Education:

• cutting the department of education by one percent,

• expanding the unpopular No Child Left Behind requirements to high schools; and

• proposed increases in Pell Grants that do not keep pace with rising college costs;

Environment:

• cutting clean water funding by $600 million, and

• hindering the EPA’s ability to enforce environmental laws by cutting the agencies funding by 6 percent;

Safety:

• The budget slashes aid to state and local law enforcement by 46 percent, from $2.8 billion to $1.5 billion.

• Entire programs are eliminated or substantially scaled back. The Community Oriented Policing Services (COPS) program, which provides grants for state and local agencies to hire new officers, is cut from $499 million to $22 million.

Budget Lacks Compassion Health care:

• Medicaid would be cut by a net $45 billion over 10 years – the lost funding is the equivalent to providing health coverage for 345,000 seniors or 1.8 million children;

Low-income assistance:

• Housing, food assistance, and low-income heating assistance both face severe cuts under the president’s plan.

• Food stamps would be cut by $1.1 billion over 10 years, and would serve 300,000 fewer people;

• Cuts the low income heating assistance program (LIHEAP) by over 8 percent, from $2.2 billion to $2 billion;

Veterans:

• The co-payment charged of many veterans for prescription drugs would more than double, and veterans would be required pay a new enrollment fee of $250 a year.

What’s Missing?

long-term budget imbalances;

falling wages;

falling incomes;

rising health care costs;

increasing number of uninsured;

decreasing international competitiveness in manufacturing;

growing trade deficits;

growing imbalance between college costs and student aid;

growing personal debit levels;

environmental and resource protection needs;

adequate job training;

and many, many other vital domestic and international priorities.

The president’s economic policy and his budget fails to address:

Message Themes: “You can’t fight rhetoric with facts”

“Wrong Choices, Wrong Priorities.”• These cuts are not necessary, we have a choice.

“Cutting investment in what keeps America strong.”• We need to rebuild our communities, our states and our towns;

• We all rely on public support for our nation's infrastructure—both physical and intellectual, everything from roads to schools.

“We now see WHO and WHAT conservatives really value.”• Value wealth over work, the wealthy over the middle-class;

• The special interests and corporations get what they want, and the middle-class and those without a voice get left behind.

“The consequences for America are dire.”• The cuts weaken our nation, both now and in the future.

Wrap-up

Current economic policy is moving our economy in

the wrong direction

Budget is making the wrong choices

• Cutting investments

• There are dire consequences for the middle class