WASHINGTON, Jan. 20 (UPI) -- Amid an economic recovery which has finally started to pick up some steam, President George W. Bush promised in his State of the Union address Tuesday to push even harder to bring jobs back and add further momentum to the speed of the American recovery.
The question is how much does the economy need pushing, and how much of the pushing will be staying the economic course which the administration set forth since taking office?
Possibly at stake, come election time, the White House if the economy were to turn downward again.
A weak economy was one of the key factors in unseating his father George H.W. Bush and the fact that the electorate felt that Bush the elder was out of touch with American workers.
With Bush junior this same American electorate is once again concerned about the economy and what direction the president is going with U.S. economic policy. But also with the electorate greatly chastened by the devastating attacks of Sept. 11, 2001, there is concern for more than just economics. Currently polls show the public largely in favor of the president's handling of homeland security matters.
In his speech Bush praised the American worker, saying "Americans are proving once again to be the hardest working people in the world. The American economy is growing stronger."
On the economic front GDP is showing solid growth, the stock markets have made a strong recovery, consumers have been buying homes and cars -- all helped along by both aggressive lending rate cuts on the part of the Federal Reserve and the $1.7 trillion in Bush-sponsored tax cuts.
"Americans took those dollars and put them to work, driving this economy forward," the president said.
But there are problems looming beneath the surface, including fiscal deficits, which continue to grow larger and larger as the U.S. continues to spend much more than it takes in to the tune of hundreds of billions a year. Also, during the Bush administration 2.3 million jobs have been lost, with around a total of 10 million Americans currently unemployed.
In Tuesday's address, the president called on Congress to help turn the economic recovery into one that is lasting, and proposed making the large tax cuts permanent, making some health care expenses tax-deductible for low- and medium-income families, reforming the Social Security system to include individual retirement accounts and providing money for job training at the community college level.
The latter proposal combines the two hot topics of education and jobs.
"Tonight I propose a series of measures called 'Jobs for the 21st century.' This program will provide extra help to middle- and high school students who fall behind in reading and math, expand Advanced Placement programs in low-income schools, and invite math and science professionals from the private sector to teach part-time in our high schools," the president said. "I propose increasing our support for America's fine community colleges, so they can train workers for the industries that are creating the most new jobs. By all these actions, we will help more and more Americans to join in the growing prosperity of our country."
Bush added: "Job training is important, and so is job creation. We must continue to pursue an aggressive, pro-growth economic agenda."
The massive tax cuts come to an end by 2010 and as expected the president called for staying the course on this fiscal stimulus and keeping these cuts permanent.
"Congress has some unfinished business on the issue of taxes. The tax reductions you passed are set to expire. Unless you act, the unfair tax on marriage will go back up. Unless you act, millions of families will be charged $300 more in federal taxes for every child. Unless you act, small businesses will pay higher taxes. Unless you act, the death tax will eventually come back to life. Unless you act, Americans face a tax increase," Bush said. "What the Congress has given, the Congress should not take away: For the sake of job growth, the tax cuts you passed should be permanent."
On the creation of private retirement accounts as part of the Social Security system, the president said "Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. We should make the Social Security system a source of ownership for the American people."
Bush also discussed the importance of health care and the major cause for why Americans lack health insurance: the rising costs of health care. He proposed "Association Health Plans" allowing small businesses to form buying cooperatives for care plans and health insurance tax incentives for lower income Americans.
"On the critical issue of health care, our goal is to ensure that Americans can choose and afford private health care coverage that best fits their individual needs. To make insurance more affordable, Congress must act to address rapidly rising health care costs. Small businesses should be able to band together and negotiate for lower insurance rates, so they can cover more workers with health insurance. I urge you to pass Association Health Plans," Bush said. "I ask you to give lower-income Americans a refundable tax credit that would allow millions to buy their own basic health insurance."
At issue for some economic experts is whether there was anything approaching solid long-term economic policy in the Bush State of the Union speech -- policy will promote economic growth, and keep deficits in check while funding the war on terrorism, paying for homeland security and meeting important domestic needs.
Many economists have noted that while the administration is taking claim for the recovery -- which is expected to post a strong 7 percent GDP growth rate for the second half of 2003 and which has been boasting a 20-month high on the stock markets -- there is also a deficit heading for the half trillion dollar mark and a current account deficit that is over the half trillion mark.
For some the criticism is that Bush has simply spent his way into an unsustainable rebound. He can't loosen fiscal policy more, and without fresh injections of cash into the economy, perhaps growth will fall away, and along with it, the stock market.
According to former Federal Reserve economist, Hamilton College professor Ann Owen, "The state of the U.S. economy can be summed up simply: short-term -- good; long-term -- bad."
She noted that by many measures the economy is encouraging: inflation is low, productivity is increasing, consumer confidence is growing, and output has recently posted some impressive increases.
"However, these bright indicators of the short-term economy are snuffed out by the economy's prospects for the future." Owen said. "Large current budget deficits as well as increased future obligations for Social Security and Medicare indicate that the current level of spending is unsustainable. Eventually, taxes will either have to rise and/or spending will have to be cut dramatically."
For Tuft's University economics professor Gilbert Metcalf, the assessment is much the same -- the U.S. economy is currently in a lull before the storm of baby boomer retirement and the consequent large jump in entitlement payments that would follow.
"I am concerned that we've squandered an opportunity to build up a cushion to prepare for the baby boomer retirements. Entitlement spending for Medicare and Social Security are going to drive up our deficit sharply in a few years," Metcalf said. "The present administration has prepared for that day by 1. giving a tax cut now and thereby spending money now that will be urgently needed in coming years and 2. offering a prescription drug plan that could raise costs dramatically in an already stressed program."
Metcalf is chair of the Department of Economics at Tufts and is a research associate at the National Bureau of Economic Research.
Sen. Chuck Grassley, R-Iowa, the chairman of the powerful Senate Committee on Finance praised the president's comments, saying "On the economy and tax relief, report after report has shown we've done the right thing. By letting taxpayers keep more of their own money in 2002 and 2003, we created incentives to work, save and invest. These actions drive economic growth."
(With reporting by UPI Chief Economist Ian Campbell)
