In middle America, mixed views on tax cut

Edmund Riccio knows what he wants to do with his share of President Bush's $674 billion economic-stimulus package. His six-person General Foundry LLC needs a new truck, state-of-the-art computers, and extra cash to build up its inventory. "It sure would be a relief," says the former Bethlehem Steel executive.

But not far away in the offices of the United Steelworkers, Local 2599, Lenny Yushko scoffs at the idea of one of his union members hunting for work with the $3,000 proposed by Mr. Bush. "Where are the jobs?" asks Mr. Yushko, who worked 34 years at Bethlehem's coke works before it closed four years ago.

Indeed, as Congress prepares to debate Bush's mix of supply-side tax cuts and compassion for the displaced worker, the city of Bethlehem represents a real-time look at the opportunities and challenges in enacting the far-reaching plan. Some of its citizens are eager to see if things can get moving again with a $1,000 per-person tax reduction, which the president says 92 million people will be eligible for, and the elimination of taxes on dividends. Others are skeptical that anything will trickle down to the significant number of lower- and middle- income workers. And many just want to see if Washington can deliver on its promises.

Everytown USA

Bethlehem is typical of many communities that may be affected by Bush's plan. The unemployment rate in the region is 5.7 percent, not far from the national average of 6 percent. It has a dynamic ethnic mix, from Latinos to the blond-haired descendants of the Moravian settlers. And it has had more than its share of economic ups and downs.

Situated on the banks of the fast-flowing Lehigh River, it used to be one of the great steel- producing cities. Smoke-belching furnaces lined the river for miles. coke works, where Yushko worked, lit up the sky at night.

The steelworks flourished in large part because of a steady supply of hard-working immigrants who lived across from the plant. Bethlehem management, however, eventually shut down the furnaces after the economics of making steel there no longer made sense. This week, International Steel Group offered to take Bethlehem Steel out of bankruptcy by buying the remaining assets for $1.5 billion.

More recently, the Lehigh Valley has turned to telecommunications. Fiber- optics companies such as Agere Systems, a spinoff of Lucent Technologies, have had grand plans. But with the shrinking of companies like AT&T, the suppliers have also had to scale down. Now some of those factories in the Lehigh Valley are empty.

The cyclical slowdown that pushed the national economy into recession hit Bethlehem as well. Thus, for some businesses, the Bush plan is a ray of hope. One of those who's encouraged is florist Mike Kohn, owner of Patti's Petals Inc.

Only 18 months years ago, he built his attractive store on land that used to be part of the steel mill. Flowers, however, are a discretionary purchase, and not one that people make when they're out of work. As business slowed last year, he laid off one of his workers. Mr. Kohn says this past December was especially difficult since many companies did not send their usual gift baskets. "Anything to stimulate spending would be wonderful," he says.

Dean McDermott, president of his own discount brokerage firm in the center of Bethlehem, says several of his customers are relieved by the Bush plan. One female senior citizen derives part of her income from dividends. "She's very happy they may be tax free," he says. And Mr. McDermott himself is pleased since he is the father of a 10-week-old son. Under Bush's plan, the child-care tax credit may be increased by $400 a year.


But there are also plenty of skeptics in the town. One is Roxanne Ouellette, a waitress at the Blue Anchor Family Restaurant. As she mops the counter, she says her first reaction to the Bush plan is "ha, ha, ha." She and her husband, a truck driver, make about $70,000 a year. Even though they might see a reduction in their tax rate, she isn't optimistic yet. "I've heard this before. I've got to see it before I believe it."

Northampton County Executive Glenn Reibman doubts the Bush plan will do much for Bethlehem, which is part of his county. He would rather see it aimed at lower- and middle-income taxpayers. "Do rich people spend?" he asks. "I think they tend to save," he answers.

Still, if the stock market were to respond to the Bush proposal, it might help the county. In the past, the county put profits from its investments into its pension fund. But with the market down, it has had to take money out of its general fund.

Before Bush's speech in Chicago on Tuesday, Thomas Hyclak, an economics professor at Lehigh University, was doubtful the Bush program would do much. "I'm a Democrat," he said as he sat down to watch the speech on television. "It's not clear the Bush plan addresses the problem of excess capacity for the telecom companies around here."

However, as Bush began enumerating his proposals, Mr. Hyclak started to change his mind. He thought small business, an important part of the local economy, might benefit from an increase in the amount they can write off for equipment purchases. He was particularly enthusiastic about Bush's proposal for reemployment accounts, which could result in up to $3,000 for job training, job hunting, or even moving expenses. "Conceivably, it's a very good idea," he says.

By the end of the speech, he was not ready to change parties. But "for Bethlehem," he said, "I think the tone is right, and the direction is right."

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