Economic Report of the President

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level rather than being included in the business tax base. This allows forbuilding progressivity into the system by providing an exemption of, say,$40,000 for a family of four. While these taxes appear to be quite different,they are equivalent from an economic standpoint because consumption is theoverall tax base in each case.Important benefits could also be obtained through simplification andreform of the current tax system. A reformed version of the current systemwould reduce transition and adjustment costs, and considerable benefitscould be obtained by simplifying and rationalizing tax provisions that overlapor are otherwise overly complex.The Administration’s tax program has already significantly reformed the taxsystem. Achievements include lowering marginal tax rates, reducing thedouble tax on corporate income, simplification, and improved fairness forfamilies. The tax relief passed during the President’s first term also increasedthe overall progressivity of the Federal tax system. The bottom 40 percent ofthe population in terms of income received the largest percentage reductionsin total Federal taxes, and the share of taxes paid by the top 20 percent interms of income increased as a result of the tax cuts enacted since 2001.Possible additional reforms would be to lower tax rates further and broadenthe base; rationalize the current multitude of saving incentives; further reduceor eliminate the remaining double taxation of corporate income; and simplifythe complex system of depreciation rules. Reform within the current systemwould also address the Alternative Minimum Tax (AMT), which adds considerablecomplexity, and which, under current law, is expected to affect arapidly growing number of taxpayers over the next five years.Although tax reform has been discussed for many years, it is a particularlypressing need at the current time. Increasing numbers of taxpayers will beaffected by the Alternative Minimum Tax, which will be a major source offrustration and complexity. In addition, the tax reductions enacted since 2001will expire in a few years unless they are extended or a new, reformed taxsystem is adopted. If these provisions are allowed to expire, the result will besubstantial increases in taxes on taxpayers in all income groups, with thelargest percentage increases being imposed on lower- and middle-incomehouseholds.ImmigrationChapter 4, Immigration, examines the economic impact and implicationsof immigration. In recent decades, the United States has experienced a surgein immigration not seen in over a century. Immigration has touched everyfacet of the U.S. economy and, as the President has said, America is a strongerOverview | 21
and better Nation for it. A comprehensive accounting of the benefits andcosts of immigration shows that the benefits of immigration exceed the costs.Immigrants have settled in all parts of our Nation and have generallysucceeded in finding jobs quickly, helped in large measure by the flexibility ofthe U.S. labor market. One indicator of this success is that foreign-bornworkers in the United States have a higher labor force participation rate anda lower unemployment rate than foreign workers in most major immigrantreceivingcountries.While flexible institutions may speed the economic integration of theforeign-born, the distribution of the gains from immigration can be uneven.Less-skilled U.S. workers who compete most closely with low-skilled immigrantshave experienced downward pressure on their earnings as a result ofimmigration, although most research suggests these effects are modest. Also,communities contending with a large influx of low-skilled immigrants mayexperience an increased tax burden as immigrant families utilize publiclyprovided goods such as education and health care.U.S. immigration policy faces a complicated set of challenges, perhapsmore so now than ever before. Policy should preserve America’s traditionalhospitality to lawful immigrants and promote their economic contributions.Yet these goals must be balanced with the Nation’s many needs, including theimperative for orderly and secure borders. These challenges have only grownin a post-9/11 world. The persistence of undocumented immigration andproblems with employment-based immigration suggest that current policyfalls short in addressing the demand for immigrant workers and the need fornational security. The President’s proposed Temporary Worker Programrecognizes these problems and would implement necessary reforms.Expanding Individual Choice and ControlChapter 5, Expanding Individual Choice and Control, examines the roleplayed by property rights in providing the link between people’s effort andtheir reward. Having property rights allows people to know that they will reapthe rewards of their efforts and entrepreneurship.When used in economics, the term resource refers not just to naturalresources, such as land or clean air, but to anything of value, such as skills. Aproperty right refers broadly to the arrangements society uses to assign peoplecontrol over resources. Property rights have a variety of names, includingdeeds, titles, permits, vouchers, allowances, or accounts. Patents and copyrightsare also property rights, establishing control over inventions, books,songs, and other creative concepts. The essential idea is the same in each case:the owner of the property right controls how something valuable is used.22 | Economic Report of the President
Page 1 and 2: Economic Reportof the PresidentTran
Page 3 and 4: C O N T E N T SECONOMIC REPORT OF T
Page 5 and 6: ECONOMIC REPORT OF THE PRESIDENTTo
Page 7 and 8: the playing field is level for our
Page 9 and 10: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 11 and 12: Monetary Policy ...................
Page 13 and 14: Encouraging FDI ...................
Page 15 and 16: 3-4. The Equivalence of Sales Taxes
Page 17 and 18: Real GDP expanded by 3.7 percent du
Page 19: Options for Tax ReformChapter 3, Op
Page 23 and 24: Innovation and the Information Econ
Page 25 and 26: ecause they do not expect family me
Page 27 and 28: The Administration has pushed aggre
Page 29 and 30: C H A P T E R 1The Year in Review a
Page 31 and 32: Consumer SpendingConsumer spending
Page 33 and 34: easons for this correlation are dis
Page 35 and 36: 2003, a number of countries that to
Page 37 and 38: ProductivityRecent productivity gro
Page 39 and 40: The projected path of inflation as
Page 41 and 42: strengthen. The forecast is based o
Page 43 and 44: The growth rate of the economy over
Page 45 and 46: In sum, potential real GDP is proje
Page 47 and 48: C H A P T E R 2Expansions Past and
Page 49 and 50: The behavior of real GDP is similar
Page 51 and 52: of faltering may be attributable to
Page 53 and 54: most recent expansions have shown r
Page 55 and 56: middle of 2003. The more moderate r
Page 57 and 58: 1.2 percent. Employment continued t
Page 59 and 60: SummaryModerate recessions are foll
Page 61 and 62: permanent cuts should permanently r
Page 63 and 64: and the Jobs and Growth Tax Relief
Page 65 and 66: Federal government revenues had bee
Page 67 and 68: Fiscal policy played an especially
Page 69 and 70: C H A P T E R 3Options for Tax Refo
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High Compliance CostsThe complexity
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a reasonable estimate is that a 10
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Excess BurdenBecause taxes distort
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Box 3-3 — continuedThe bottom 40
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more uniform or pure version of the
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of being collected all at once at t
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would have to differ from state tax
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owner claimed it was for business,
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The current set of saving incentive
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the current system. In addition, so
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C H A P T E R 4ImmigrationIn recent
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TABLE 4-1.— Foreign-Born Share of
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immigrants (also called illegal or
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largest group of immigrants was bor
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employment costs, including wage fl
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Chapter 4 | 103
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wages fall in response to immigrati
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immigrants from Latin America do re
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addition, as migrants leave the cou
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include siblings and adult children
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despite the tremendous growth in th
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The TWP would allow new foreign wor
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C H A P T E R 5Expanding Individual
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This phenomenon, known as the “tr
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producing more of that good. Simila
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In 2002, the President proposed “
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provide evidence of increased profi
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schools are four times as efficient
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low administrative costs, estimated
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Box 5-2: The Benefits of Land Title
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development plan designed by others
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C H A P T E R 6Innovation and theIn
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E-mail is the most common online ac
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Changed circumstances, such as new
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Illegal Acts on the InternetThe Int
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or develop new markets, which can l
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inflation factor for the price cap
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U.S. households connecting to local
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garbling their transmissions. To li
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from 51.3 percent in December 1999
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for their property rights. The Admi
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C H A P T E R 7The Global HIV/AIDS
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Chart 7-1 Estimated HIV Infection L
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There is no cure for HIV/AIDS, thou
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AIDS is more damaging to a househol
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and risk reduction have helped redu
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only one price, the drug companies
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Box 7-1 — continuedfocused on the
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Box 7-2 — continuedenhancing coor
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ConclusionThe United States and cou
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Good Two. In Ricardo’s simple mod
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The Impact of Trade on Labor Market
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The U.S. Advantage in Services Trad
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U.S. firms is associated with a cor
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anked the second-best country out o
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the Chinese government agreed to el
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Trade LiberalizationTariffs and oth
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ConclusionThe United States is the
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Report to the President on theActiv
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The Council continued its efforts t
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The Staff of the Council of Economi
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John List and Ted Gayer provided co
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Appendix BSTATISTICAL TABLES RELATI
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PageB-32. Gross saving and investme
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PageB-94. Relation of profits after
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Real gross domestic pr
Page 208 and 209:
TABLE B-3.—Quantity and price ind
Page 210 and 211:
TABLE B-5.—Contributions to perce
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TABLE B-6.—Chain-type quantity in
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TABLE B-7.—Chain-type price index
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TABLE B-8.—Gross domestic product
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TABLE B-10.—Gross value added by
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TABLE B-12.—Gross domestic produc
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TABLE B-13.—Real gross domestic p
Page 224 and 225:
TABLE B-14.—Gross value added of
Page 226 and 227:
TABLE B-16.—Personal consumption
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TABLE B-18.—Private fixed investm
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TABLE B-20.—Government consumptio
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TABLE B-22.—Private inventories a
Page 234 and 235:
TABLE B-24.—Foreign transactions
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TABLE B-26.—Relation of gross dom
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TABLE B-28.—National income by ty
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TABLE B-29.—Sources of personal i
Page 242 and 243:
TABLE B-30.—Disposition of person
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Year or quarterTABLE B-32.—Gross
Page 246 and 247:
TABLE B-33.—Median money income (
Page 248 and 249:
TABLE B-35.—Civilian population a
Page 250 and 251:
TABLE B-36.—Civilian employment a
Page 252 and 253:
TABLE B-38.—Unemployment by demog
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TABLE B-40.—Civilian labor force
Page 256 and 257:
TABLE B-42.—Civilian unemployment
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TABLE B-44.—Unemployment by durat
Page 260 and 261:
TABLE B-46.—Employees on nonagric
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TABLE B-47.—Hours and earnings in
Page 264 and 265:
Year orquarterTABLE B-49.—Product
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PRODUCTION AND BUSINESS ACTIVITYTAB
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Year ormonthTABLE B-53.—Industria
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Year or monthTABLE B-55.—New cons
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TABLE B-57.—Manufacturing and tra
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TABLE B-59.—Manufacturers’ new
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Year ormonthTABLE B-61.—Consumer
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TABLE B-62.—Consumer price indexe
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TABLE B-64.—Changes in consumer p
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TABLE B-65.—Producer price indexe
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TABLE B-67.—Producer price indexe
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TABLE B-68.—Changes in producer p
Page 288 and 289:
TABLE B-70.—Components of money s
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TABLE B-71.—Aggregate reserves of
Page 292 and 293:
TABLE B-73.—Bond yields and inter
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TABLE B-74.—Credit market borrowi
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TABLE B-75.—Mortgage debt outstan
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TABLE B-77.—Consumer credit outst
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TABLE B-79.—Federal receipts, out
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TABLE B-81.—Federal receipts, out
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TABLE B-83.—Federal and State and
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TABLE B-85.—State and local gover
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End of yearor monthTABLE B-87.—U.
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End of monthTABLE B-89.—Estimated
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TABLE B-91.—Corporate profits by
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TABLE B-93.—Sales, profits, and s
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YearComposite(Dec. 31,2002=5,000) 3
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YearAGRICULTURETABLE B-97.—Farm i
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TABLE B-99.—Farm output and produ
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Year ormonthTABLE B-101.—Agricult
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INTERNATIONAL STATISTICSTABLE B-103
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TABLE B-104.—U.S. international t
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TABLE B-106.—U.S. international t
Page 330 and 331:
TABLE B-108.—Industrial productio
Page 332 and 333:
TABLE B-110.—Foreign exchange rat
Page 334:
TABLE B-112.—Growth rates in real
show all

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