Taxpayers ambivalent on cuts
What if they threw a tax cut and nobody came? As President Bush signed into law Wednesday his second major tax cut in as many years, on yet another dreary, drippy Washington day, the nation seemed to react with a collective yawn. For months, as Bush has scored well in the polls on overall leadership and foreign policy, he has registered far lower numbers for stewardship of the economy. In the public wish list from Uncle Sam, tax cuts barely make the top 10.
"This is very, very familiar," says Karlyn Bowman, an opinion expert at the American Enterprise Institute. "Over the last 35 years, in most polls people have been very skeptical of political promises on tax cuts."
After the tax cuts of 1981 and 1986, few people thought they got much tax relief. Even those who were taken off the rolls completely in 1986 didn't think their taxes had gone down. That's because people view their tax burdens as a package, including federal, state, property, and sales taxes, she says.
Interviews with taxpayers in three cities - Chicago, Boston, and Hollywood, Fla. - reflect this ambivalence. Dirk Tussing, from the suburban Chicago town of Western Springs, agrees that he will benefit from the tax break. As the owner of a small computer-consulting business, he anticipates the plan's writeoffs for purchases like equipment and cars. He also predicts the economy will benefit.
"Typically when there are tax cuts, people tend to spend more," says Mr. Tussing, whose wife is a stay-at-home mother to their two teenagers.
The new federal law provides for $320 billion in tax cuts over 10 years, though if Congress decides not to allow some cuts to expire in the next few years, as the plan now calls for, the 10-year bottom line will be much higher, closer to $800 billion. People with dependent children will see an immediate benefit, in the form of a $400-per-child rebate check. Federal income tax rates go down by at least 2 percentage points, depending on which bracket a taxpayer is in, and taxes on stock dividends and capital gains are also reduced. But analysts are skeptical that, as with previous tax cuts, there will be a groundswell of public jubilation.
"The average person and even the above average person in terms of income is not going to notice this" tax cut, says Stanley Collender, a budget expert at Fleishman-Hillard. "It will have very little impact on people's spending habits and buying habits, and when you combine it with the likely increases in taxes in states and cities, the average person is going to be worse off, not better off.
In the end, though, Bush still comes out ahead with his tax cuts, analysts say. Increases in the budget deficit, which could boost interest rates and ultimately hurt the economy, are too theoretical for most voters to get agitated about, says Bowman of AEI. And Bush's cuts help people achieve stability in their overall tax picture, which does matter to voters. "If he gets their taxes down, he's on the same side of where taxpayers want to be," she says. "This is a rich and powerful country, and Americans want a lot from their government. But a politician who will keep those taxes more stable is the one they'll be closest to."
On US streets, Americans generally welcome the extra cash that will be coming their way, but express mixed views of the plan's overall impact on the economy and on social programs that help the less fortunate.
For Bill Croke of Stoneham, Mass., it's easy to support the tax cut: "My financial planner tells me it'll really help me." As a retired high-school teacher receiving a state pension, he is by no means wealthy. But he has money in the stock market, and over the past few years he's lost a lot from his IRA account and his taxable investments. "I really need this," says Mr. Croke, an easygoing man with a gray flat-top haircut and a lemon yellow sweatshirt.
Croke spends much of his time volunteering at the Boston Medical Center, working with people much worse off than he. The social programs that help those people, he notes, aren't something he wants cut back. "Get rid of corruption and patronage - that's where the cuts should come."
In south Florida, salesman Steve Newcomb sees only the wealthy benefiting. "A $400 tax credit is nothing to brag about," he says. "Although it may be close to a month's rent for some people, it is still not significant for them in the grand scheme of things."
Mr. Newcomb, a registered independent, says Bush seems to be playing off former President Reagan's trickle-down theory, which advocates tax cuts that allow businesses to create more jobs, thus stimulating economic growth. "The trickle down theory didn't work in the 1980s," insists Newcomb, "and it is not going to work now."
Trenton Junior, a landscaper from Davie, sees Bush's tax cut as a preelection ploy. "Think about who this tax cut really benefits - the rich," says Mr. Junior, as he plunks down $4.53 for generic coffee and powdered creamer. "We've been hearing about tax cuts to benefit low-income workers for years now. I'll believe it when I see it in my paycheck."
• With reporting by Amanda Paulson in Boston, Jennifer LeClaire in Hollywood, Fla., and Anne E. Stein in Chicago.