The Temple of the Balanced Budget

     Well, the clowns in Congress and White House have passed another so called balanced budget of 1997. Whoopee, let's all get run down a buy a pack of cigarettes to celebrate!  What really is going to be the result of this deal?  Let us not take a look at this from the individual perspective (which apparently matters hardly a witt to the 'conservative GOP Congress'), but from the bigger macro/collectivist view promoted by the PRESSident.  After all, the one common thread of this deal is the promotion of collectivism over individualism by further seduction of individuals into various collective packets for future politicKING.

The Expanded EITC welfare program

    While upsetting to conservatives who desire lower taxes and smaller government, the expanded EITC welfare program is basically an economic wash.  Its negative effects are primarily social and political.  Yes, it is a transient redistribution of wealth from those with higher incomes to those with lower incomes as a welfare handout.  However, in the macro perspective much of what those with higher incomes EARN is because of some variation of the patent protection racket that this group of people enjoys with government in the manufacturing and distribution of the widgets they make.  

     Redistributing some wealth created to those getting the EITC isn't really going to take much from higher wage earners in the long run.  It is a fact of life that the most valuable services and products of contermporary existance are still provided for by those of unique talents and corespondingly high incomes.  What the EITC welfare payment is going to be spent on will cycle back to those who it was taken from in the first place in the form of the goods and services that this 'welfare' purchased.  At best, there may be a slim increase in the velocity of resources through the economy via the temporal displacement of federal spending before the taxes are collected.

     In other words, if you run a widget company and will have the equivalent of ten widgets in taxes taken from you by Uncle Bill and this is given to ten people on EITC welfare, they will go out and buy ten widgets with their new handout.  There is very little chance that one of those ten in the EITC welfare program will go out and use their handout to start up a new widget enhancement company, which would create new wealth and diversity in the economy.  Someone with the talent to accomplish such a task would have done it regardless of the EITC welfare program. 

     The downside social, economic, and political macro effects of the expanded EITC welfare program appear to be all long term consequences which don't seem to concern most politicians.  It is instead left up those outside politics to speculate on the effects of the EITC welfare program: 

• It does little, if anything, to promote the generation of new wealth which will move society and the economy forward.  Fortunately, most of those in the EITC welfare program are there for a short period of time.  

• It does little to promote individual responsibility for health care, saving for retirement, saving for their kids education, etc, etc.  These are all significant social marketplace problems that could have been dealt with at the individual level via appropriate social engineering of the EITC welfare program and other parts of the tax code.  Oh well. :)

• Many people no longer are paying into FICA or Medicare because more and more of their payroll taxes are being refunded as part of the EITC welfare program.  These socialized programs are being funded by other middle class taxpayers, but don't expect to hear too many liberals mention this fact.  

• It gets the government back in the mode of paying people who can't afford to have kids to have kids and for this cost to be paid for by others in the 'village'.  So much for welfare reform. :(

• This agreement adds more complexity to the tax code which in turn only makes people more chained to the collectivist social engineering whims of politicians and accountants. Fortunately, most of those in the EITC welfare program are not there for long.  The EITC welfare program is the most fraud ridden program of the federal government with fraud at over 20% of every dollar passed out.  Its expansion will only exacerbate this problem. 

Kidcare

     The implementation of Kidcare is basically the US copying the health care financing system of Canada for the kids of the US, using a tax on cigarettes to pay for its implementation. Canada's health care system is basically a block grant from the Canadian federal government to individual provinces to operate health care coverage for those in the province.  Each Province is allowed significant latitude in setting up and operating this coverage -- some are very socialistic, some are mix of private and public premiums.  The US has now adopted this system for those children without coverage at a planned cost of more than double the private sector children's health care premiums.  

     In the near future (a decade?), Kiddiecare will undoubtably expand (explode) to the point that few if any employers will provide dependent coverage to their employees.  The interim question will be how to finance this explosion in costs -- the answer will be new taxes on someone, most likely employers, possibly via a new employer/employee payroll tax.

The Tabaccy Deal & KidCare

     Few with any honesty can expect that any savings to be found in government run health care programs due to the silly tobacco settlement deal.  For starters, the KidCare program will be funded from this revenue -- but wait, wasn't that money supposed to go to tobacco related health care costs?  Oh well, no big deal, let's just assume that the wizards in Washington will figure how to spend the money twice.  

The Upside of Kidcare

     On the upside, the pooling of child coverage may have the positive benefit of pooling the catastrophic coverage.  This might allow for the development of a large individually driven health care system for adults to provide a check and balance against managed care abuses.  

     However, the KidCare program is more likely to lead to further socialization of US healthcare and the final demise of the best health care in the world to socialized medocrity under the weight of government mandates, price controls and rationing. This will likely take place just in time for the BoomerCare implosion.  Oh well.:)

     Just don't get sick and you won't have to worry, unless you are part of the working taxpayer group when the boomers retire.  Just remember the mantra -- Anything for the Kids -- so long as you mortgage their future economic freedoms to pay for it.  

Capital Gains Tax Cuts

     The capital gain tax cuts are the one item in the budget deal that will have a positive benefit to the economy.  Yes there is room to improve on capital gains in the future -- like getting rid of it.  Taxing capital gains is little more than a tax on the creation of new wealth and the appreciation of the value of working class to the companies they work for.  What is not being made much of is how this so called tax cut really will generate more revenue than it costs to the economy.  Some long term projections have it starting to cost revenue in the far term, as if these projections can make any accurate assessment about the value of capital in a world that will be more technologically advanced than most anyone today can imagine.  

Balanced Budget Summary

    While there are some unresolved issues in this deal, such as the 'vetoed' education saving program and the possibility that the President will apply Davis Bacon/union welfare system to workfare, what is the summary of the budget deal?  

     In a few years, we will look back and see 80s all over again -- the increased GDP and tax revenue created by a small and limited capital gains tax cut will eventually be swamped by new deficit spending for new and old entitlements that politicians refuse to control (although much of it could perhaps be addressed by adopting generational accounting).  The underlying assumption of all these agreements is that the economy will continue to expand and there will not be a significant downturn in the economy.  And yes, there is a Santa Claus...

    The sad thing to ponder is that when the economy does turn downwards (which will happen as the Boomers near retirement and lose interest in working so hard, if not sooner), with people collectively relying on government more and more, the social, moral and economic fabric of our nation will slide downhill to stabilize further down the slope to lower wages, lower growth and lower expectations of future growth.

   Of course from the politiKING's perspective, the above slope in inversed -- the more people are clumped into collectives dependent on government, the more the population is indentured to politicians whose task it is to take care of those collectives.  The PRESSident doesn't care so long as there is plenty of bugsplat to report.  This budget agreement will promise lots of that in the future, as if there ever is a shortage of junk to splat over that 21" peep hole to paradise.