The U.S. economy registered disappointing growth of only .7 percent in the last three months of the year. The Bush administration says a sluggish economy shows the need for the tax cuts being proposed by the president.
For all of 2002 the U.S. economy expanded by 2.4 percent. That's an improvement from the recession of 2001 but not as high as the Bush administration had predicted. Technically the U.S. economy may still be in the recession or downturn that began in March 2001. Most economists say the recession ended more than a year ago but others say that after a tentative recovery in 2002 the economy is again on the verge of a downturn.
Glenn Hubbard, the president's chief economist and author of the $674 billion ten-year tax cut proposal, said the economy is performing well below potential. Mr. Hubbard stressed the proposal to exempt individuals from taxation on interest and dividends will boost economic growth.
"By having the exemption at the individual level, there is a direct incentive to increase the dividend payout [by corporations to their shareholders]," he said. "Remember the president's proposals makes neutral the corporate decision between dividends and retained earnings. Current law goes the other way."
Mr. Hubbard, on leave from the economics faculty at Columbia University, has made clear his intention to soon return to teaching.
The fourth quarter economic performance is weaker than financial markets had anticipated. There were few expectations that growth would continue at the four percent pace of the third quarter but a weak Christmas for retail stores gave an early indication that consumers were holding back on spending. The recovery from recession has been modest with almost no new jobs being created and the unemployment rate holding at a high 6 percent.