STATE OF THE UNION

Economy

This is the third report in a four-part series examining the state of our nation in advance of President Bush's State of the Union address next Tuesday. We have already reviewed the state of our nation's health care and energy/environment. Tomorrow, we will take a look at the state of our nation's security.

Historically-low job growth, declining wages, rising poverty, record deficits, and the worst deterioration of America's fiscal situation in history characterize the current state of the U.S. economy. President Bush continues to tout tax cuts as the central part of his economic plan, which he claims will "help the economy create new jobs today while permanently raising the wages and living standards of American workers now and in the future." But the tax cuts have failed to deliver, leaving more people worse off. The typical middle class family is doing no better today than it was 25 years ago, facing stagnant incomes and staggering costs. Next Tuesday, you'll hear a lot of happy talk about the economy. American Progress has the facts.

FALLING WAGES: Both average real hourly and weekly wages are falling, dropping 0.4 percent from December 2004 to December 2005. Since the 2003 tax cuts, real average weekly earnings have fallen 0.8 percent, from $554.92 in May 2003 to $550.60 in Dec. 2005; hourly wages fell even further -- 1.1 percent -- from $16.52 in May 2003 to $16.34 in December 2005. Similarly, real average weekly earnings have fallen for the past four years since the end of the 2001 recession. But the top executives of America's 500 largest companies were, on average, insulated from this trend. They received an aggregate pay raise of 54 percent in 2005, bringing their total group compensation to $5.1 billion.

SUSTAINED, RECORD DEFICITS: In his 2002 State of the Union address, Bush promised that "our budget will run a deficit that will be small and short-term." And in 2003, Vice President Cheney stated, "I am a deficit hawk. So is the president." But neither of their statements has been true. The 2005 U.S. budget deficit was $319 billion, the "third-largest ever." Goldman Sachs predicts $5 trillion in deficits over the next 10 years and Federal Chairman Alan Greenspan argued last April that "the federal budget is on an unsustainable path. ... Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse." The President's tax cuts would only "expand the deficit over the next five years," despite his promises to the contrary.

THE JOB DEFICIT: Job creation has been a central feature of Bush's past State of the Union addresses. But job creation during the Bush administration has been the lowest since World War II. Even since the 2003 tax cuts, job growth has been historically weak, growing at less than half the average rate for similar periods in comparable post-war recoveries. Jobs in the manufacturing sector have been particularly hard-hit, with California losing the most. General Motors and Ford have each announced cuts of 30,000 hourly jobs. Federal spending on employment and training for dislocated workers in 2005 was just $1.5 billion, less than the amount spend on highway aid and less than was spent in 2000 ($1.6 billion), when the unemployment rate was lower. The share of workers with a pension declined from 50.3 percent in 2000 to 40.6 percent in 2004, and the share without health insurance rose from 14.2 percent in 2000 to 15.7 percent in 2004.

RISING POVERTY: In 2004, Bush promised to "help more and more Americans...join in the growing prosperity of our country." But the poverty rate has risen each year since 2001, with 12.7 percent of the population now living in poverty. African-American poverty rose from 22.7 percent in 2001 to 24.7 percent in 2004, and child poverty went up from 16.3 percent in 2001 to 17.8 percent (1.3 million children are under the age of 18). Bush administration policies have further exacerbated these problems. The tax bills enacted since 2001 "have helped high-income households far more than other households," according to the Center for Budget and Policy Priorities. Households with incomes exceeding $1 million have received average tax cuts of $103,000, "an increase of 5.4 percent in their after-tax income." But in 2005, the bottom fifth of households "will receive an average combined tax cut of $18 from these bills, raising their after-tax income by 0.3 percent."

STAGNANT MINIMUM WAGE: The federal minimum wage has remained stuck at $5.15 an hour for nearly a decade, leaving about 7.3 million workers (5.8 percent of the workforce) unable to keep up with rising costs. A minimum wage increase would most benefit disadvantaged workers and would be an effective tool in the fight against poverty. Almost 61 percent of the workers who would be affected by a minimum wage increase are women, 15.3 percent are African-Americans, and 19.7 percent are Hispanics. The Economic Policy Institute concludes, "The minimum wage raises the wages of low-income workers in general, not just those below the official poverty line." While the federal government has been slow to act, states are taking action. Seventeen states and the District of Columbia currently have minimum wage rates higher than the federal rate. Members of Congress, by contrast, receives an annual increase of at least two percent in pay; current salaries are at $165,200. The last time Congress turned down its pay raise was in 1998.