Mr. Chairman, I yield myself such time as I may consume. As you just indicated, the first hour of this budget debate has been set aside pursuant to the Humphrey-Hawkins section of the Budget Act. Under the rule, the Joint Economic…
Mr. Chairman, I yield myself such time as I may consume.
As you just indicated, the first hour of this budget debate has been set aside pursuant to the Humphrey-Hawkins section of the Budget Act. Under the rule, the Joint Economic Committee will have this hour evenly divided on two sides.
According to most neutral observers, including the Federal Reserve, and a consensus of private economists, the current economic expansion is quite healthy. That is good news. Indeed, if anything, there seems to be a little concern in most quarters that the economy may be growing too fast, a concern that I do not share.
The U.S. economy grew 4 percent in 2004 and advanced at a rate of about 3.5 percent in 2005. The growth rate in the first quarter of 2006 is expected to be very robust, probably over 4 percent, consistent with the trend of strong growth seen since 2003.
The improvement in economic growth is reflected in other economic figures as well. Let me name a few.
Since August of 2003, business payrolls have increased by 5 million jobs. The unemployment rate has declined to 4.8 percent. Consumer spending continues to grow. Homeownership has hit record highs. Household net worth has also reached a record high. Productivity growth continues at a healthy pace. Long-run inflation pressures appear to be contained. Long-term interest rates, including mortgage rates, are still relatively low, although somewhat higher than what they had been previously. The resilience and flexibility of the economy have overcome a number of serious shocks, most recently the hurricanes of last year. Equipment and software investment have been strong over this period. However, with somewhat higher mortgage rates, the housing sector is slowing, although it appears that a soft landing is most likely. It is clear that the Federal Reserve remains poised to keep inflation under control.
In a recent policy report to Congress, the Fed noted that the U.S. economy delivered a solid performance in 2005. Furthermore, the Fed observed that ``the U.S. economy should continue to perform well in 2006 and 2007.'' The Fed, along with a number of private economists and government agencies, expects that economic growth in 2006 will be about 3.5 percent, still very healthy growth. This economic growth will continue to expand employment and further reduce unemployment.
In summary, overall economic conditions remain positive. The U.S. economy has displayed remarkable flexibility and resilience in dealing with the many shocks, including terrorist attacks and weather effects.
The administration forecast for economic growth in 2006 is comparable with those of the blue chip consensus and the Federal Reserve. With growth expected to be about 3.5 percent in 2006, the current economic situation is solid and the outlook remains favorable.
Mr. Chairman, I reserve the balance of my time.
Mr. Chairman, I yield such time as he may consume to the gentleman from northwestern Pennsylvania (Mr. English).
Mr. Chairman, I reserve the balance of my time.
Mr. Chairman, I yield myself such time as I may consume.
It seems like there must be an election coming to hear some of the rhetoric here on the floor which actually defies reality. Let me try and explain to those who are at least open-minded about the situation what has happened with our economy over the past 5 or 6 years.
We all remember during the late 1990s we had very robust growth in the stock market. Things were perking along at a rate that most economists at the time thought was an exuberant time when investments were being made for reasons other than perhaps good, solid rationale.
In the third quarter of 2000, the economy began to get soft and in the last quarter of 2000 it did even worse. As we look at the reasons for that, there were a number of economists who concluded different things. One thing became clear, and that was investment was not being made and that something needed to be done.
This chart to my left is a chart which shows fixed private, nonresidential investment, in other words, investment in things that would be productive in our economy. As we look at what happened as we began to move through 2001 and 2002, these bars that drop below the line show there was negative investment. People were not investing in productive things; and as a result of that, the economy was not doing well.
The administration proposed a fix, and that fix was to do things here in the House of Representatives and in the Senate and through the administration that would encourage the American investor to reengage in investing in productive things. And so in 2003 the House of Representatives and the Senate collectively, together, passed some tax cuts to encourage investment. And those tax cuts, which were temporary in nature which we continue to talk about making permanent, had the desired effect.
If we look at this chart and look at when the negative investment ended and positive investment started, it happens to be after those tax cuts went into effect. As a result of reducing the percentage of taxes paid on dividend gains and as a result of tax cuts on capital gains, we see beginning in 2003 and through 2004 and through 2005 and projected to continue by the Fed and by other blue chip economists and blue chip forecasts, we are expecting to see that growth continue through 2006 and 2007. As a matter of fact, we had 4 percent growth in 2004; 3.5 percent growth in 2005; and in the first quarter of 2006, we saw 4 percent growth continue. This is good news for not only the American investor; it is also good news for others in the workforce and in the economy.
Here is what happened to employees' payrolls during that period of time. Once again we see some lines that drop below the positive mark. We see some negative growth in nonfarm payrolls as we move through. And as we saw the 2003 tax cuts go into effect, once again we saw the economy rebound and we see employees in nonfarm payrolls begin to increase to much healthier levels than they had been during the 2000, 2001, 2002, and 2003 period of time when investments, productive investments, were not being made.
As we sought an answer and the administration proposed the tax cuts and the House and the Senate implemented the tax cuts, once again nonfarm payrolls and employees' payrolls began to grow, as demonstrated by this chart.
Finally, gross domestic product, which is how most economists measure growth in the economy, continues to be very good. Beginning in 2003, as our tax cuts went into effect, dividend tax cuts, the taxes on dividends were lowered, the taxes on capital gains were lowered. We see in 2003 and 2004 as we move across here, and as I said before in 2004, we had an average of 4 percent growth. In 2005, we had an average of 3.5 percent growth over the four quarters of that year.
The forecast for the first quarter of this year, which is in red, the first of the four lines, the actual forecast is 4.7 percent. I think that might be a little high. I think it might be closer to 4 percent. But that is healthy economic growth, and we continue to see the effect of the policies we have put into place. We expect that the growth may slow somewhat during the first, second, and third quarter; but we believe we will average 3.5 percent this year.
I might add one thing that I think is important for us to remember, and that is that the tax cuts, together with other policies, have produced this growth and we need to continue to support those policies as well. The Federal Reserve has been a huge part of this as well. While it is nice for the Congress to take credit with the implementation of the tax policy that we implemented, the Federal Reserve also deserves a lot of credit for what has happened here through the policies that have been brought about through something called ``inflation targeting.''
Today, inflation is very low. Inflation is around 2 percent; and it is around 2 percent because, in my opinion, the Federal Reserve has used this policy of inflation targeting as the cornerstone for Fed policy. As inflationary expectations, as we look to the future, interest rates have continued to be historically low. In spite of the fact there has been a little up-tick in interest rates because of Fed policy in the last year or so, we continue to see affordable interest rates and interest rates that influence investment and continue to provide the stimulus that we need for the kind of economic growth that we have seen since 2003.
Mr. Chairman, I just wanted to make these points. I think this is a very important background for us as we begin this budget debate.
Mr. Chairman, I reserve the balance of my time.
Mr. Chairman, I yield myself such time as I may consume.
One additional way to look at our economy and to see how it compares with what we may have seen around the rest of the globe is to simply look at the statistics as to how our U.S. economy has performed as compared to some others. For example, when we look at real GDP growth from the first quarter of 2001 through the fourth quarter of 2005, the U.S. economy expanded at an average annualized rate over all of those times, even though it was slow during the earlier years, at 2.6 percent, and the United States ranked first among its peer group in the world in real GDP growth.
In terms of investments of fixed assets, from 2001 to 2005, growth investments in fixed assets as a percentage of GDP growth rose in Canada and the United States but fell in the European Union and Japan. And so once again, the United States was a leader in terms of investment and fixed assets.
In terms of industrial production from 2001 to 2005, through 2005, the United States industrial production increased by 7.1 percent, a very, very healthy picture. And I might add that this industrial production increased because of investments, because of investing in productive things, investment brought about by the budgetary policy and the tax policy of the Congress of the United States and the administration.
Employment and unemployment. From January 2001 through December 2005, the United States ranked second in employment growth in both absolute and in percentage terms. In the United States employment grew by 5,165,000 jobs, or 3.8 percent. Canada ranked first in percentage growth with 9.3 percent, while the European Union ranked 15, first in total increase of 5.7 million, which was actually 3.4 percent, far below the United States.
In December of 2005, the U.S. had an unemployment rate of 4.9 percent, the second lowest among its peer group. If we look at this chart next to me of unemployment rates, if you look at the unemployment rate in the European Union, it was 8.3 percent. If we look at the unemployment rate in Canada, it was 6.4 percent. And at the end of the year, same time frame, the unemployment rate in the United States was 4.8 percent.
Just interestingly enough, there is a member of the U.K. Parliament in town today, and I saw him early this morning and he said, I envy you. I said thank you, and why is that? He said, when I go to work at home and I earn an income for my family, 59 percent gets paid to the government. I envy us, too, because we have seen beyond the period of high taxes. We have seen beyond the period of producing an economic policy that in Europe provides today for an 8.3 percent unemployment rate or in Canada of a 6.4 percent unemployment rate. We are fortunate. But it is because of good policy. It is because of the policy of this administration and this Republican Congress that we have a 4.8 percent unemployment rate.
Labor productivity is up in our country as well, and that is one of the reasons for this great economic growth. From the first quarter of 2001 to the fourth quarter of 2005, labor productivity grew by 9.5 percent. That means that because of technology that we have invested in, smartly, and partly because of tax policy, we have made our workers more productive than at any time in our history and the most productive work force in the world.
I said a word a few minutes ago about price stability. Price stability is what it is today, lack of inflation, inflation of 2 percent or under, because of Fed policy. Chairman Bernanke told me earlier this week that he intends to continue policies that have price stability as the number one goal as inflation targeting continues, to keep our rate of inflation low and to keep interest rates low accordingly. Smart economic policy.
And so as we walk through the things that have occurred, partly because of the Congress and partly because of the Federal Reserve, we see that things in our country are doing well, particularly when compared to others.
On balance, the U.S. economy has outperformed its peer group and large developed economies in a number of key measures of economic well- being between 2001 and 2005, during the period that George W. Bush has been President.
Pro-growth tax policy and good monetary policy have contributed to the superior performance of the U.S. economy, and as my friend from the U.K. Parliament said today, yes, we are proud of this record.
Mr. Chairman, I reserve the balance of my time.
Mr. Chairman, I yield such time as he may consume to the gentleman from Michigan (Mr. McCotter).
Mr. Chairman, I yield 2 minutes to the gentleman from Missouri (Mr. Hulshof).
Mr. Chairman, just to conclude this debate, it was not a Republican idea originally to stimulate economic growth by use of the tax policy. It was John Kennedy's idea. When Ronald Reagan was elected President, we Republicans all stuck our chests out and said what a wonderful idea. But it was John Kennedy, who, in his State of the Union speech after he was elected, said we cannot expect to continue to lead the economic world if we fail to set the economic pace at home. And he went on in his speech to detail the tax cut plan that he wanted to put in place. It was put in place and the economy grew. And Ronald Reagan did the same thing. A different plan, same concept. And George Bush I did the same thing, and George W. Bush has embarked upon the same thing.
Now, it has been suggested by the minority that somehow we can have tax cuts without cutting taxes of people who pay taxes. This chart to my left shows who pays taxes. As a matter of fact, the top 1 percent of the taxpayers pay 34 percent of the taxes. The top 50 percent of the taxpayers pay 96 percent of the taxes. And that means that about 4 percent of the personal income taxes that are paid in this country are paid by the bottom 50 percent of the wage earners. As Mr. Hulshof just pointed out, many of those folks have been taken off the tax rolls altogether.
So the charge that people who earn more money get a larger share of the tax cut, I guess I would just ask this question: If you believe, as I do, that tax cuts stimulate economic growth, and if you are going to have tax cuts at all, then you have to cut taxes from the people who are paying them, and they are almost all in the upper half of the income brackets.