This article first appeared in the St. Louis Beacon, Dec. 16, 2010 - A wag once remarked that a camel looked like a horse that had been designed by a committee. With that wry observation in mind, we can safely say that the budget deal pending in Washington is a steed worthy of Lawrence of Arabia.
The bill has a little something for everyone and plenty of controversy to go around. Despite continuing concerns about the long-term solvency of Social Security, there was surprising support for a one-year reduction in payroll tax. The Democrats who want it say it will provide economic stimulus. The Republicans acquiesced because, after spawning the tea party movement, they could hardly oppose a tax cut.
Consensus evaporated, however, when it came time to address the legacy of George W. Bush. When his famous tax cuts were proposed in 2001 and 2003, the budget projections were so dire that Congress was forced to include a sunset provision in them. By pretending that the reduced rates would expire in 2011, the 20-year forecast was made to appear reasonable enough to allow passage. Now, sunset is upon us; and it appears that everybody's afraid of the dark.
When the cuts were enacted, proponents suggested they would spur such fierce economic growth that the government would be awash in cash by the time they expired. Needless to say, that convenient fiction failed to materialize.
Mired in hopeless debt and the worst economic downturn since the Great Depression, we are confronted with the prospect of an across-the-board tax increase that figures to destroy what's left of the economy. The Democrats would extend the cuts for the middle class while allowing them to expire for the wealthiest taxpayers to pay for extended benefits for the unemployed. The Republicans are having none of that.
To clarify the situation, I sought to delineate the options available to our elected representatives along with their projected budgetary impact. In keeping with the spirit of the season and to make the analysis more palatable to readers who are not overly concerned with economic matters, I also tried to imagine how selected characters from It's a Wonderful Life might feel about the various plans.
Option #1: Let Them Eat Cake With due apologies to Marie Antoinette -- who apparently never uttered the line for which she is best remembered -- this option would continue the Bush tax cuts for the most affluent for two years while denying extended benefits to the unemployed.
Championed by Mr. Potter, the plan correctly recognizes that the government lacks the money to pay for more generous unemployment compensation. It responds to that problem by forfeiting an estimated $75 billion of potential revenue to the wealthiest taxpayers.
The rich, the theory goes, will invest their windfall, which will ultimately trickle down to the great unwashed in the form of newly created job opportunities. The fact that this phenomenon has never actually occurred in the 4.5 billion-year history of the Earth is not seen as an insurmountable obstacle.
Maintaining the tax cuts would not necessitate additional spending but, because the government is operating on money loaned to it by China, Saudi Arabia and assorted other dismal regimes, every dollar of revenue that is deferred is another dollar that must be borrowed. Projected Budgetary Impact: Adds $75 billion to the deficit.
Option #2: Buy Them The Cake This plan would allow extended unemployment benefits for the next 13 months, but would end the tax breaks for the gilded 2 percent of earners at the top of the economic pyramid.
George Bailey favors this option because it allows regular folks to keep their houses by calling on the privileged few to man up and shoulder more of the burden on behalf of the common good.
Extending the benefits is projected to cost $56 billion but that sum would be off-set by the additional $75 billion in new revenue that ending the cuts would yield. Projected Net Budgetary Impact: Reduces deficit by $19 billion.
Option #3: No Cake For You The rich don't get their tax cuts; the unemployed don't get their benefits. The rationale is that we simply can't afford to pass up desperately needed revenue, nor can we afford to provide expanded entitlements at the moment.
This plan is promoted by the Bank Examiner. He's not a bad guy and harbors ill will toward no one, but numbers are numbers ... Projected Budgetary Impact: Reduces current deficit by $75 billion and eliminates $56 billion in additional spending.
Option #4: All Cake, No Dough Everybody gets everything under this option. We continue to borrow money to underwrite low tax rates for the most affluent, while taking out new loans to extend benefits for the unemployed.
This plan is favored by Clarence the Angel because it will require a genuine Christmas miracle to make the math work. Projected Budgetary Impact: Adds at least $131 billion to the deficit.
I'll leave it to the reader to guess which plan emerged from negotiations on Capitol Hill. For those playing along at home, here's a hint: If you're out driving on Christmas Eve and you see a forlorn figure standing on a bridge railing, staring vacantly into the turbulent waters below, don't be alarmed. That's just Treasury Secretary Timothy Geithner wishing he had never been born.
M.W.Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.