How the 2005 economy could affect Bush's big plans

President Bush will spend a significant portion of 2005 selling Americans on a full plate of ambitious economic policy goals.

The economic climate in which the sales job takes place will be crucial. And there the Bush administration appears to be fortunate. The marketing of the president's economy policy push will take place against the backdrop of what forecasters expect will be relatively good economic news in 2005.

"The performance of the US economy in 2005 will be good but not great - at least in comparison with 2004," Nariman Behravesh, chief economist of the consulting firm Global Insight, wrote in a recent report to clients.

The White House has provided only broad conceptual outlines for initiatives it says will include overhauling Social Security by permitting private accounts, cutting the budget deficit in half over five years, and revamping the tax code. The details are sure to be both complex and controversial when they are revealed in the New Year since all involve picking relative winners and losers.

The president's plans are "going to be a tough sell" argues Mark Zandi, chief economist for Economy.Com. But "policymakers will have a propitious economic backdrop in 2005," he notes in a recent report on the firm's website.

Despite the prospects of a good economy, there is some question whether the administration will actually push for tax code reform in 2005. The Washington Post reported Tuesday that major tax changes will be pushed back to 2006 to allow the Bush economic team to cope with Social Security and budget issues in 2005. White House spokesman Trent Duffy responded "The President is committed to reforming our tax code."

Whatever the precise mix of administration initiatives, the economic setting is relatively upbeat. In Business Week's annual year-end survey of 60 top economists, the consensus forecast is that the US economy will grow 3.5 percent from the end of 2004 to the end of 2005 - just below the 3.8 percent growth rate projected for the current year.

If the business economists are correct, economic growth will be strong enough in 2005 so that corporate profits next year will rise 6.7 percent, but this after double-digit gains in the past two years. That kind of growth, however, is expected to keep businesses investing and creating jobs in 2005. The jobless rate, which was 5.4 percent in November, is projected to fall to 5.1 percent by the end of next year.

"The economy is in very solid shape," Gregory Mankiw, chairman of the Council of Economic Advisers, told reporters on a conference call last week. He was announcing the Bush administration's economic forecast for 2005, which is in line with what private forecasters expect. For purposes of building its new budget, the Bush team is projecting economic growth of 3.5 percent, unemployment dipping to 5.3 percent, and consumer prices rising 2.0 percent.

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