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The Nation

Families See Two Sides to Tax Cuts

'You have the selfish interest, and...an issue of civic virtue'

May 18, 2003|Aaron Zitner | Times Staff Writer

PITTSBURGH — Many Americans are of two minds about the federal tax cuts that are moving through Congress.

They would dearly like to have a few hundred more dollars in their pockets. The stumbling economy has left many with credit card balances they have neglected, home repairs they have deferred or vacations they have postponed.

But at the same time, they are leery of what the tax cut might do to the nation as a whole. The federal deficit is soaring, and local government services are being cut -- police forces trimmed, school hours shortened, library doors closed.

A congressional committee will try this week to find a compromise between versions of President Bush's tax cut plan passed by the House and Senate. As the committee was getting ready for business, Times reporters interviewed three families about their views of taxes and spending.

It's not a scientific sample, just three voices in a vast country. Although the families are geographically and financially diverse, they expressed views that are remarkably consistent.

*

PITTSBURGH -- Amy Cook's rounded belly signals that her family life is about to change -- and so will her finances. She and her husband, David, expect the birth of twin girls within a few weeks, and their family will grow from three people to five.

Amy has a good job. As a human resources manager at a high-tech company, she earns close to $100,000 and has been building up stock options. David, a community college history professor, has started law school and is aiming for a big boost in income after he graduates.

And yet the region's high taxes, combined with the costs of a larger family, may push the Cooks to do something they never wanted: flee the city they love. Amy grew up in Pittsburgh and now lives in one of its more affluent neighborhoods, Shadyside. Her parents, brother and sister live nearby.

"But a few years ago, our real estate tax tripled," Amy said. "The city wage tax is very high. We've always been committed to living in the city, but we are more than seriously considering moving out to the suburbs."

And so the Cooks are looking forward to help from a federal tax cut. Although they haven't calculated their expected savings, they have been keeping an eye on the tax debate, and they know that Amy's high salary and two additional children mean they would save thousands of dollars.

At the same time, they are not entirely comfortable with the prospect of a tax cut.

"I guess I'm conflicted about it," Amy said during a conversation in her living room, which features a small mountain of trucks and dolls belonging to her 2-year-old son, Harper. "You say, 'Gee, this would benefit me, and I've got to worry about my family.' But then you also have to ask if this is really going to spread and grow the economy."

David relayed the same mixed feelings. "You have the selfish interest, and running against that you have an issue of civic virtue," he said. Although David said he welcomes money from the federal government, he suspects the tax cut is not in the public interest. He fears it might fail to boost the economy, while draining money from services. "I believe there is a role for the government other than delivering the mail," he said.

The Cooks, both 36, are registered Democrats, neither of whom voted for President Bush in the last election.

The House and Senate have passed different versions of tax legislation and negotiations will begin this week on a compromise.

Whatever the final package, the Cooks' biggest gain would probably come from changes in the child tax credit. Both bills immediately would boost the credit from $600 to $1,000 per child -- $3,000 for the Cook family after the twins arrive, compared with $1,800 under existing law.

In addition, the Cooks' top income tax rate would fall from 30% to 28% under either bill, and more of their income would be taxed at 15% rather than at higher rates.

Finally, the Cooks might gain from a lower tax on investments. They do not foresee much benefit from reducing or eliminating taxes on dividends -- an element of both bills -- because most of their stocks are in tax-sheltered retirement plans.

But a cut in the capital gains rate, which the House has approved, could be a big help when Amy exercises the stock options she holds from her employer, FreeMarkets Inc., a software and services company.

In all, the Cooks estimate, they would save more than $4,000 in federal taxes -- a substantial benefit, but probably less than the hit the family took recently on property taxes for their four-bedroom home.

And more local tax increases are on the horizon. Local officials have warned recently of the city's going into receivership as it struggles to close a $60-million gap in its budget of $386 million. About 1,000 of the city's 5,000 workers, including 100 police officers, already have been laid off. With more savings needed, the city may close local fire stations and raise taxes.

On the state level, Pennsylvania Gov. Edward G. Rendell, a Democrat, has proposed a state income tax increase to fund a plan to cut school-related property taxes.

"Are all the different government entities working together, and are they coming at things from the same angle?" Amy Cook wondered.

"No," she answered herself. "The federal tax cut would obviously help to alleviate some of the burden we have on a state and local level.... .

"But at a much higher level, it seems completely inconsistent."

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