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Less than three months later, on June 7, 2001, Bush signed into law a 10-year, $1.6 trillion package of tax cuts making good on that promise. It buoyed businesses and consumers at the government's expense, creating private investment and jobs but contributing to future budget deficits.
Here in southwest Michigan, the tax cuts acted as a life preserver for an area beset with business flight and job loss. Companies such as Upjohn pharmaceuticals and General Motors, along with six paper mills, fled town at the end of the past century. But in the past seven years, about 40 start-ups have sprouted.
"I just don't think they would have existed otherwise," says Ron Kitchens, chief executive officer of Southwest Michigan First, the local economic development agency.
For nearly a decade, the Bush tax cuts — including a second, $350 billion dose in 2003 — have fueled debate in Washington about the proper role of government. Should it give money back to taxpayers at all income levels to spur economic growth, at the risk of reducing programs serving the poor and middle class? Should it deny revenue to a government that's nearly $14 trillion in debt? Should it reward today's taxpayers at the possible expense of future generations?
Bush cut individual income tax rates, reduced taxes on capital gains and dividends, cut the estate tax rate and raised its asset limit, trimmed taxes on business investment and boosted breaks for education, married couples and families with children.
The White House and Congress are close to deciding whether to extend the Bush tax cuts beyond Dec. 31 and impose new income restrictions or time limits. Keeping them all would cost about $3.7 trillion over the next decade. Eliminating them for income more than $250,000, as President Obama wants to do, would reduce the cost to $3 trillion.
A USA TODAY/Gallup Poll taken Nov. 19-21 found broad support for keeping most or all of the reductions, at least temporarily. Four in 10 Americans said all the tax cuts should be extended; 44% said new limits should be set for top earners, and 13% said all the tax cuts should be allowed to expire.
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This Midwest city of 72,000 offers a snapshot of the policy's impact on individuals, families and businesses over the past decade:
• Denny Yetter retired at 63, when being a financial adviser "wasn't fun anymore." Blessed with six grandchildren since the tax cuts were enacted, he and his wife, Susan, were able to contribute to six college funds and give more to local charities.
• Michael Stoddard moved his small human resources business into new digs in nearby Portage, taking advantage of the lower tax rates he paid through the individual tax code and the ability to write off the cost of computers and furniture almost immediately, rather than over five to seven years.
• Rob Oakleaf graduated from Kalamazoo College in 2001 and bounced from one job to another before landing at Ministry in Community, an anti-poverty agency. As its new director, Oakleaf computes his annual income tax cut at $635. He'd prefer to let the government keep the cash.
In 2001, Bush told 1,300 people here that the government wouldn't miss the money. "We can proceed with tax relief without fear of budget deficits, even if the economy softens," he said.
That proved optimistic. After four years of surpluses ending in 2001, the 2002 budget ran a $158 billion deficit, largely because of the government's response to the 9/11 attacks, which included going to war in Afghanistan and creating a homeland security bureaucracy. The budget has remained in the red ever since, topping $1 trillion in 2009.
For most of the decade, until the recession hit in December 2007, millions of families and businesses thrived, at least in part because of the lower tax burden.
"It was real money in people's pockets — and left a real debt to be repaid," says Clint Stretch, a tax specialist at Deloitte Tax. A typical family of four might have saved $50 a week, he says, enough for a night out at a restaurant. Only the very wealthy saved hundreds of thousands of dollars, he says.
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Exactly nine years after Bush signed the tax cut, on June 7, 2010, President Obama went to Kalamazoo Central High School and lauded the "Kalamazoo Promise" — a program funded by anonymous donors that gives free tuition at Michigan colleges and universities to any school district graduate.
The connection wasn't lost on Kitchens. Without the Bush tax cuts, he says, the local wealth wouldn't exist to fund the Kalamazoo Promise. "If that money had gone to federal taxes, it wouldn't be here," he says.
As the debate nears a conclusion in Washington, USA TODAY visited Kalamazoo to gauge how the tax cuts affected one community and its residents.
Three views of the tax cuts
Retiring and giving back
Susan and Denny Yetter were the typical dual-income family — until they decided that too much of the second income, which moved them into a higher tax bracket, was going to the government.
Before Bush cut the top income tax rate from 39.6% to 35%, Susan quit her job in public relations and devoted much of her free time to caring for her mother and mother-in-law. The extra family time, they reasoned, was worth the drop in income.
After the tax cuts were enacted, Denny's job as a financial planner also became expendable. He retired three years ago at 63 after three decades in the business, even managing his health insurance expenses until Medicare kicked in at 65. Susan will qualify for the government health insurance program next year. The couple live largely off their retirement savings and investments.
Though they won't divulge specific numbers, the Yetters say they benefited from many of Bush's tax cuts, including those for married couples, dividends and estates. They favor extending them all.
"I just think taxes are a drain on the economy," Denny says, sitting in his Portage, Mich., living room overlooking a golf course. Under lower taxes, "you take that money and you do stuff. If you don't have the money, you can't do anything beneficial."
Some of the couple's spending over the past decade has benefited themselves, their two sons and six grandchildren. All the grandkids were born during that time; Susan and Denny have traveled much more than they did in the past, including internationally and for his golf outings, as well as frequent visits to one set of offspring in Cincinnati.
They figure the lower tax rates also have meant money that can be put to better use than the federal government would find for it. That includes charities in the Kalamazoo area.
"We wanted our donations to stay right here on our doorstep," Susan says, pointing to charities such as Ministry in Community. Of the government, she says, "We have no benchmark for what they're doing."
Growing with the tax cuts
Michael Stoddard is a walking advertisement for the Bush tax cuts — but he's not a firm believer in them.
Stoddard, an accountant, and a partner started the human resources company BASIC in 1989. It now employs more than 90 people, on its way to an anticipated 180 in the next few years. It has about 9,000 clients who contract for help with payroll, benefits and other services.
In 2002, BASIC moved to a 13,000-square-foot headquarters in Portage. Thanks to Bush's tax cuts, Stoddard was able to write off virtually everything he purchased, from chairs to computers, rather than spreading the tax break over five or more years. He also benefited from the lower individual tax rates, because he had chosen to continue paying individual rather than corporate taxes.
"Our growth sort of coincides with the tax cuts," Stoddard, 61, says. "What it's done for us is allow us to purchase a lot of equipment that we could offset and improve our cash flow."
Stoddard's company has been on Inc. magazine's list of the 5,000 fastest-growing companies since 2007. Its annual revenue tops $9 million, up almost 40% in three years. The partners invest regularly in local start-up companies, helping to build the Kalamazoo area's economy while benefiting from Bush's lower 15% capital gains rate.
Many of his own employees, Stoddard says, worry that if taxes were raised, the company's profits would decline — jeopardizing their own jobs.
Despite his success during the Bush years, Stoddard isn't sold on tax cuts. He and his wife have five children and five grandchildren, and he's concerned about their future as the nation's $13.7 trillion debt continues to grow. Spending cuts and tax cuts, he says, won't reverse the red ink.
For that reason, Stoddard says he might be willing to forfeit lower taxes for the greater good once Michigan's struggling economy improves. He refers to it as "a reverse earmark."
"I'm OK with that," he says, "because I realize we've all got to pitch in here."
Willing to return his share
Rob Oakleaf knows what the Bush tax cuts mean to his wallet: $635 a year.
He'd gladly live without it, Oakleaf says, so the U.S. government could spend more on programs that benefit the people he serves: Kalamazoo's poor and homeless.
"I have not given any thought to the tax cuts, and I don't think they have been any benefit to me," says Oakleaf, 30, executive director of the homeless day shelter Ministry in Community.
Unlike wealthier individuals or business owners, Oakleaf has no difficulty computing the impact of the tax cuts on his middle-class existence. He earns $55,000 a year. The Tax Foundation's online calculator computed his tax cut for him.
Bush's tax reductions were enacted about the same time Oakleaf was graduating from Kalamazoo College. He since has worked lesser-paying jobs as a high school teacher, bartender and website and graphic designer. At those jobs, the tax cuts were worth less to him.
Going against the grain of this year's anti-government, Tea Party-infused electorate, Oakleaf is a believer in the power of government and the taxes needed to fund it. The nation would be better off, he says, if the tax cuts were allowed to expire.
"I think that taxes are the cost of living in a safe, civil society, and we should be willing to contribute to that," he says. "There are some things that only the federal government does, or does better than everyone else."
Among the services Oakleaf would like to see bolstered with his tax dollars are education, job training, health care and infrastructure investment. All would help his agency's clients.
"A lot of the people we serve are not making good financial decisions," he says, noting any monthly benefits they receive usually run out before the month does. "Any money spent by the government for the benefit of the American people helps the people that we serve. … That's what people need. They don't need $29."
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