authority, the Bush Administration has completed free trade agreements with 12 countries, including Australia, Morocco, Bahrain, Chile, Singapore, and Jordan, and is negotiating free trade agreements with 10 others. In addition, the Administration is in the process of forming a Free Trade Area of the Americas, which will become the world's largest free trade area.

The Administration also played a critical leadership role in successfully launching a new round of global trade negotiations at the WTO, and has developed an aggressive plan to open international markets for U.S. farmers-which helped generate a 10-percent increase in agricultural exports between 2000 and 2003.

The President recognizes that some communities and some industries face adjustments in the global economy. That is why he signed a major expansion of assistance to help workers acquire new skills and find new jobs. The Trade Act of 2002 nearly tripled the Trade Adjustment Assistance program. In 2003 it provided some $1.3 billion in training and income support, with nearly 200,000 workers eligible for assistance. President Bush is ensuring that U.S. trading partners abide by their international commitments by aggressively enforcing U.S. trade laws. For example, the Administration brought the first-ever WTO case against China for its discriminatory tax treatment against U.S. semiconductor makers. In July 2004, China agreed to end this unfair practice.

Energy

It is critical to our economy to have affordable, reliable, and secure energy supplies. President Bush in his first term put forward the first comprehensive, long-term energy policy in a decade to meet this goal through conservation, investment in new technology, and development of new domestic sources of energy. The Bush Administration has completed, or is in the process of implementing, nearly 75 percent of the 106 recommendations contained in the President's comprehensive National Energy Policy, such as filling the Strategic Petroleum Reserve to capacity.

President Bush also proposed modernizing the electricity grid by reforming outdated laws, opening access to the transmission grid, establishing regional planning and coordination, and establishing mandatory reliability standards to prevent blackouts. The President has advocated funding for clean coal research, including FutureGen, and increasing use of clean coal technology; funding for nuclear energy research and development; new efficiency standards for consumer products; tax incentives for use of renewable sources of energy like wind and solar power; and the opening of a small area (less than one percent) of the Arctic National Wildlife Refuge for environmentally responsible oil and gas exploration. The Arctic National Wildlife Refuge has the potential to provide over one million barrels of oil a day and provides access to one of the largest known reserves of natural gas in the United States.

President Bush launched a groundbreaking initiative to develop technologies and infrastructure to produce, store, and distribute hydrogen for use in fuel-cell vehicles, electricity generation, and other applications. Hydrogen-powered fuel cells hold the potential to power cars, trucks, homes, and businesses while producing virtually no pollution or greenhouse gases.

Innovation and Ownership

In virtually every industry, every industry, American companies and entrepreneurs are exercising the power of innovation to meet 21st Century challenges. Invention, commercialization, and diffusion of new ideas into new products and services directly affect the pace of productivity growth and the quality of peoples' lives. Innovation lowers costs to consumers and brings new products to the market.

The greatest incentive for innovation is a healthy economy that rewards the inventor and investor. The Administration supports strong protection of patent rights and research and development, as well as the enforcement of anti-trust laws so that new competition is always welcomed. The President has laid the foundation for healthy innovation with tax relief that rewards those who create jobs and invest capital in new ideas. He has also proposed many other policies to build on this base:

• The President has proposed to make the Research and Experiment tax credit permanent to encourage technological discovery.

• The President proposes to increase Federal spending on new research and development to $132 billion, an increase of one percent over 2005 and an all-time high.

• He has established programs to accelerate the adoption of hydrogen fuel technology, a new and promising energy source, which has the potential to reduce our dependence on foreign sources of energy.

• His proposals would transform health care through the rapid application of new health information technology, thereby reducing medical errors and health care costs.

• The President has called for universal, affordable access for broadband technology by the year 2007.

• The President has placed a priority on nanotechnology, information technology, and scientific and technological standards.

As our economy continues to expand, the Federal Government will help communities respond to and prepare for changing conditions, particularly as some industries restructure and new industries appear. To help workers in poor communities, the President is proposing Opportunity Zones and other initiatives to provide tax relief, and attract new business, and improve housing and job training. In addition, he has signed legislation and increased funding to support the cleanup of former industrial sites, which are known as brownfields.

A key element of the Administration's policy is to promote ownership in America. The Administration has promoted and will continue to support policies that allow individuals to take greater control over their lives through private ownership. When families have assets, they have a foundation of stability to help them through difficult periods. A family that saves, owns a home, or invests through a retirement, health, or education fund is building toward a brighter future and contributing to our economy's long-term economic health.

The best place to see these effects is where people live. More Americans own their own homes than ever before, and the value of those homes is rising at a steady pace. Our strong housing market is

a testament to the faith that Americans place in their homes as a long-term investment. The President has placed a high priority on promoting further gains in homeownership, particularly among minorities. Already, minority homeownership is at a record high, and in 2002 the President set an ambitious goal to add 5.5 million minority homeowners through 2010. Through downpayment assistance programs, financial literacy efforts, tax incentives for building affordable homes, and Individual Development Accounts, the President is promoting the kinds of policies that will strengthen our neighborhoods and communities and provide more Americans a chance to call something their own. The same principle applies to other Presidential policies. Health Savings Accounts provide a better way for Americans to control and spend their health care dollars. Lifetime Savings Accounts will provide a better way for Americans to save for college tuition and other goals. Personal Retirement Accounts under Social Security will provide a better way for Americans to save for their own retirement, using a portion of their payroll taxes. In all these proposals, personal ownership is the common feature, because it is the best way to achieve financial independence and prosperity.

During the past four years, this Nation experienced significant economic challenges that tested the resolve of the American people. But as is now clear, that resolve was never in question. The economic recovery has now become a strong expansion that is bringing prosperity to more communities across America. Yet the on-going weakness in other nations' economies serve as a reminder that the United States cannot afford to take a strong economy for granted. Effective tax, monetary, labor, regulatory, environmental, education, trade, and national security policies are all necessary for a strong and growing economy.

At the same time, all these policies merely complement the effort, ingenuity, and strength of individual workers and companies that comprise our $12 trillion economy. Through the pursuit of pro-growth policies, our economy is once again growing at a strong and sustainable pace. Through a growing economy, Federal receipts are once again rising at a steady rate. Combined with spending restraint, rising revenues will reduce the near-term budget deficit. By addressing the near-term deficit and the long-term imbalances in entitlement programs, America will further reinforce our prospects for a strong economy in the years ahead.

THE NATION'S FISCAL OUTLOOK

Over the past four years, the Administration and the Congress have responded to the challenges posed by recession, terrorist attacks, corporate scandals, and the War on Terror. The responses included enacting tax relief, reducing regulatory burdens, promoting trade, supporting entrepreneurship, and making a substantial investment in our homeland security and defense. Working with the Congress, this Administration took steps to help generate and fuel the economic recovery.

Sustaining economic expansion now requires additional action, especially strong Federal spending discipline. While the Administration and the Congress succeeded in slowing the growth in non-security discretionary spending during the President's first term, more needs to be done to ensure Federal spending growth does not place unsustainable demands on our economy.

When the Federal Government focuses on its priorities and limits its claim on resources taken from the private sector that helps sustain a stronger, more productive economy. When it is achieved through spending restraint rather than through tax increases, deficit reduction bolsters confidence in America's economy. This confidence in global capital markets brings important advantages to America's economy in the form of lower interest rates and lower borrowing costs, which in turn lead to more investment and more jobs. Keeping America's fiscal house in order, while holding taxes down, sustains growth and justifies investors' confidence in the U.S. economy.

A strong economy and a strong fiscal condition are mutually reinforcing goals. Just one year ago, the Nation's economy was still emerging from the effects of multiple shocks. Last year's Budget estimated a deficit of 4.5 percent of Gross Domestic Product (GDP) in 2004, or $521 billion. Private and other forecasters had similar deficit expectations. Largely because economic growth generated stronger revenues than originally estimated, and because the Congress adhered to the spending restraint called for in the President's Budget, the 2004 deficit came in $109 billion lower than expected, at $412 billion, or 3.6 percent of GDP.

The 2005 Budget, while providing needed increases for overall homeland security and defense spending, still held overall discretionary spending growth to 4 percent for the second year in a row. Non-security discretionary spending growth declined for the fourth year in a row, down from a high of 15 percent in the final budget year of the prior Administration to about one percent in 2005.

The President's 2006 Budget demonstrates even greater restraint: it is the first Budget to propose a cut in non-security discretionary spending since the Reagan Administration. Even with significant increases in security-related spending, the 2006 Budget holds overall discretionary spending to 2.1 percent growth, which is just below the projected rate of inflation. In other words, after providing substantial increases for protecting America at home and abroad, overall discretionary spending will still be reduced in real terms.

In the area of non-defense discretionary spending, this Budget proposes more than 150 program reductions and eliminations, saving a total of about $20 billion dollars in 2006 alone. Discretionary spending is subject to the annual appropriations process and is therefore easier to control because legislation must generally be enacted each year for programs to continue.

Spending on mandatory programs is more difficult to restrain because these programs generally operate based on formulas that are not subject to annual review. Consequently, when these programs grow faster than originally envisioned, which is often the case, there is no automatic mechanism to