Who created this deficit, really?

From the Center for Budget Policy and Priorities comes the unexpected news that the Obama Administration policies have had little impact on the federal deficit after all. A new report released shows the deficit would barely top 3 billion dollars if it were not for the policies of the Bush 43 Administration. The TARP program is projected to be close to deficit neutral as the money is paid back, the recovery measures will be paid for in increased tax revenue, and the economic downturn will eventually subside. The enormous tax cuts enacted by the Republican Congress will balloon the budget shortfall and the ongoing wars in Iraq/Afghanistan will further sink any hope of fiscal solvency.

The first implications of these findings is it builds a strong case for deficit hawks to allow the Bush tax cuts to expire. The UI extension in the senate would extend the tax cuts for all but the wealthiest of Americans. Both Harry Reid and Nancy Pelosi have shown an ambivalence about passing a tax extenders bill without an extension of Unemployment Insurance. The second implication of this data is it could somehow translate into an opportunity for the Democrats to regain the upper hand on spending and the deficit. However, the Republicans will likely criticize the "liberal media" for twisting the data as usual.

Did you remember the Great Depression? How about WW2?

The Foundry's Kathryn Nix correctly pointed out on Friday that Obama is spending at levels never seen since World War II. She goes on to claim that Obama is going against public opinion in doing so. Lets not take these numbers out of context. In 1945, America had just pulled itself out of one of the most severe economic slump in American history and won one of the most costly wars it ever involved itself in. The spike in government spending was due to a combination of economic relief programs and military expenditures. That was then.

What has changed now? We are going through the Great Recession, fighting wars in Iraq and Afghanistan, and are feeling the effects of an restructured economy. As business activity is down, the GDP shrinks, and public spending for the unemployed rises. This leads to government spending taking up a considerably larger percent of GDP than it would otherwise. Yes, the stimulus bill and TARP did not help, but that's because nobody wanted to raise taxes to do so. Which is what you wanted right? I'm not saying the level of debt we have is acceptable, I'm only hoping people will look at the whole picture when it comes to GDP spending.

Lets stop wasting our money protecting Europe

While watching the debate between Scott Brown and Martha Coakley during the special senatorial election to replace Ted Kennedy I noticed both Scott Brown (R) and the Libertarian Kennedy argued for spending cuts in social programs to reduce the deficit. I don't think there is any disagreement between economists these days that spending cuts will be needed to decrease the record deficit we are stuck with. The disagreement among our politicians and civil society is where to find these budget cuts. I have argued that strategic budget cuts and strategic tax increases can both reduce the deficit and improve the economy as a whole. An example of this is a new carbon tax and cuts in the oil subsidies the federal government now gives out to lower the cost of oil. This would have the effect of reducing carbon emissions without actually addressing the issue.

One area nobody is talking about when it comes to budget cuts is defense spending. I'm not talking about cutting funding for our troops abroad, halting research in new technology, or somehow putting our troops in danger. I'm talking about reconsidering our commitments under NATO and other protective treaties. We currently hold obligations to defend most of Western Europe, a monumental task requiring endless manpower and capital. Right now, the United States contributes nearly 50% of NATO's total defense spending. We have one of the highest per capita military expenditures in the world, estimated at around 934.9 billion dollars in 2009 alone.

So how does this compare to the military expenditures of other NATO member nations?

Source: Congressional Research Service

The United States clearly shoulders a disproportionate share of NATO's military spending. Though this could be justified during a prolonged diplomatic rift with the USSR, in this day and age Europe should pay for some of its own defense. The United States is consumed with its worst budget deficit in decades. Cutting military spending doesn't have to involve reduced capacity to fight our ongoing wars or a compromised national security. It simply means dumping some of the responsibility for defense on the countries that will actually benefit from it.

Need health savings? Try environmental justice.

As far as the massive budget deficit is concerned, both tax rises and budget cuts will be needed to solve the problem. There will be a budgetary crisis when the baby boom enters the Medicare and Social Security programs. The current budget deficit won't go away without significant economic growth, which probably isn't going to happen anytime soon. In Republican Congressman Paul Ryan's Roadmap for America's Future, which has been cited as a conservative answer to the deficit, entitlement cuts are proposed. The problem is: we need these programs. But we also need to reduce the deficit. How should the government go about doing it?

The answer is cost reduction in these programs. Nobody can really contain the costs of Social Security without increasing taxes. The elderly will always need money to live and there is no way we can decrease their level of spending without subsequent reductions in quality of life. So that leaves us with Medicaid and Medicare.

Medicaid and Medicare are both public health programs, which make them easy to reduce the cost of. To reduce the cost of a public health insurance program, all you have to do is make people healthier. With Medicare, this would involve a general improvement in public health. The elderly live in the same places and live in the same lifestyles as most other Americans, therefore they cannot be singled out so easily. People on Medicaid rolls, however are the easiest targets of them all. They are all impoverished, often African American or Latino, and often live very unhealthy lives.

These people should be the focus of public health programs that focus on nutrition, hazardous waste cleanup, and air pollution control. Their health-care is directly sponsored by the government therefore improving their environmental condition should be the first consideration when trying to reduce costs. Instead of cutting health care for these people, lets remove steel mills and power plants from inner city neighborhoods. Lets clean up polluted industrial sites that are now low-income neighborhoods. After we have done this, we will have reduced the low-income demand for Medicaid and improved their lives at the same time.