Defense Spending and the Deficit Debate

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Introduction

U.S. policymakers intent on restoring the nation’s fiscal health are debating deficit reductions that could include substantial cuts to the defense budget and might significantly affect the Pentagon’s role in global security. As part of the August debt-ceiling deal, the Budget Control Act of 2011 (BCA) placed caps on all discretionary spending through FY 2021 and specifically limited the security budget, which includes the Pentagon, for FY 2012 and 2013. The law also tasked a bipartisan group of lawmakers known as the "supercommittee" with identifying at least $1.2 trillion in additional reductions. If Congress fails to achieve the mandated savings, defense spending could face automatic cuts of nearly $500 billion over nine years.

Most experts believe reducing the defense budget is sensible fiscal policy, but they disagree over the extent of the cuts necessary, where they should be made, and how they should fit into a comprehensive deficit-reduction package. Some experts also say it is unclear to what degree the new budget measures will actually affect defense spending, noting that the law leaves much to Congress in the general appropriations process.

What is the supercommittee?

The Joint Select Committee on Deficit Reduction is a twelve-member, bipartisan working group created to "significantly improve the short-term and long-term fiscal imbalance of the federal government." Unlike standing committees (i.e., the Senate Committee on Appropriations), select committees are usually created for a particular purpose and exist for a limited time. According to the BCA, the supercommittee must produce and vote on recommendations for deficit reduction as well as write the requisite legislative language to carry them out. If and when the proposal is approved by a majority of the supercommittee, it will be fast-tracked through respective committees of jurisdiction, which have until December 9 to vote affirmatively on the bill or lose the right to do so. It will then go to the floor of both chambers. There is no allowance at any point for amendments or filibusters.

What are the deadlines?

The legislation established three deadlines: The supercommittee must propose its deficit reductions by November 23; the full Congress must vote on the relevant bill by December 23; and the bill must become law by January 15, 2012. If any of the three deadlines are not met, automatic cutbacks known as a "sequestration" are triggered. The supercommittee is scheduled to terminate on January 31.

Who are the supercommittee members?

House and Senate leaders appointed members to the supercommittee on an equal basis: three representatives per party, per chamber. The eleven men and one woman are experts in fiscal policy (CNN), many of whom are veterans of prior debt/deficit negotiations. Four appointees--Republican Representatives Jeb Hensarling and Dave Camp and Democratic Representative Xavier Becerra and Senator Max Baucus--were part of the Simpson-Bowles Fiscal Commission on budget reform in 2010 and voted against the proposed package.

Tax policy remains the crux of the deficit debate despite the specter of automatic cuts for defense. Most Republicans in both houses have signed a public pledge (PDF) to oppose raising taxes, and party leaders have dismissed a Democratic proposal that, although it would not affect the Pentagon, included billions in new taxes (Atlantic Wire). Democrats maintain that any cuts to entitlement programs, such as Medicare and Medicaid, must be accompanied by tax increases. House Minority Leader Nancy Pelosi rejected a $3 trillion Republican counterproposal that did not meet this requirement.

In the National Journal, James Kitfield writes that the supercommittee is weighted more toward budget hawks like Senator Pat Toomey (R-PA) than toward defense hawks like Senator Jon Kyl (R-AZ). If there is a choice between tax increases and a sequester, Republicans "might not blink" on triggering the automatic cuts at the Pentagon.

How could the Budget Control Act affect the Pentagon?

The BCA could hit defense spending in two ways. The first portion of the law limits all "security" spending for FY2012 ($684 billion) and FY2013 ($686 billion). However, spending at the Pentagon may not be affected because the mandated savings could come from other departments under the security budget umbrella, including State, Homeland Security, and Veterans Affairs. The entire "security" budget for FY 2011 was $688.5 billion, and the caps require just $7 billion in savings for these two years.

For FY2014 to FY2021, the entire discretionary budget falls under one cap where, again, defense spending may not necessarily be subject to cuts. Speaking to ForeignPolicy.com, former OMB official Gordon Adams said, "The whole deal is designed to be opaque about the things you really want to know, such as how much defense will be cut."

The White House projects the discretionary caps will produce some $350 billion in savings from the base defense budget over the next decade. However, as Benjamin Friedman writes in the National Interest, the White House makes a number of accounting assumptions that may not pan out. The projections not only assume security spending will remain at the capped level after 2013, but it attributes most of the "imaginary" savings to the Pentagon even though the money could come from other departments. CBO Director Douglas Elmendorf (The Hill) stated in his written testimony, "Defense spending could grow at the rate of inflation, and all reductions needed to meet the [discretionary spending] caps could come from non-defense programs."

The second way the BCA could impact defense spending is through a budget sequestration resulting from the supercommittee’s failure to find at least $1.2 trillion in additional deficit reductions by the deadlines above. According to an analysis done by Pew (PDF), automatic cuts of $454 billion would apply directly to defense discretionary spending spaced over the years 2013 - 2021 (war funding would be exempt). If the committee produces a partial package of reductions, the remaining shortfall would be sequestered.

Do automatic budget cuts really work?

Automatic budget cuts have a mixed track record. A major reason they often fall short of their objective is that the same lawmakers who enact them also have the power to amend or ignore them when political pressures run high. Budget sequesters in 1988 and 1990 (PDF) later were reduced or erased by subsequent legislation. If Congress fails to meet the deadlines mandated by the current BCA, it will have roughly a year to alter, repeal, or replace the law. Many question whether sequestration will happen at all and suggest that some defense advocates like Senator John McCain (R-AZ) may be able to shield the Pentagon (LAT) from the automatic cuts regardless.

In his testimony before the deficit supercommittee on October 26, 2011, CBO’s Elmendorf said, "Regardless of the constraints placed on discretionary spending through the Budget Control Act or other actions taken by this Congress, subsequent Congresses will make the final decisions about future discretionary appropriations."

Analysts have proposed several outcomes for supercommittee negotiations (Reuters). The first is a partial deal where lawmakers come up with only a portion of the required deficit cuts and the remainder is sequestered. A second is a delayed deal where Congress extends the legislative deadlines. A third alternative is no deal, where a full sequester takes place. And fourth and fifth scenarios would be a full deal or a deal that "goes big" and crafts a much larger package, which some economists have recommended.

How does the current defense budget stack up historically?

The Pentagon’s total budget request for FY 2012 (PDF), prior to BCA spending caps, was $670.9 billion: $553.1 billion for the base budget and $117.8 billion for overseas contingency operations, including war spending in Iraq and Afghanistan. The following charts from CFR’s Center for Geoeconomic Studies put U.S. military spending (PDF) in a historical context. Advocates for budget cuts at the Pentagon often cite the fact that the United States spends nearly as much on its military as the rest of the world combined. They also refer to the fact that defense spending has roughly doubled since 2001.

Conversely, advocates against cuts in military spending often cite the fact that, as a percentage of its total economy, U.S. spending has steadily declined over the past sixty years.

Defense expert Michael E. O’Hanlon told CFR that those arguments "are not very useful or persuasive." The defense budget depends on a host of complex factors including the real strategic environment overseas. CFR’s Stephen Biddle says the defense budget is best understood as an "efficient risk frontier," where the nation’s investment in defense represents "a collective political decision by the country about how much they’re willing to pay in order to reduce the risk to national security by a certain amount."

Where does Washington stand on the defense budget?

A fundamental review of Defense Department missions and capabilities is expected in February 2012 to help inform a reassessment of strategic priorities. In October 2011, Defense Secretary Leon Panetta announced that the department is preparing to release a five-year budget (Reuters) that will include some $250-$260 billion in savings. The proposed reductions would effectively limit the growth of the defense budget to the rate of inflation, a decision backed by the Obama administration. Panetta indicated in a November interview that forthcoming budget cuts (NYT) may require base closings, reductions in the nuclear arsenal, and changes to military medical and retirement benefits. However, he has described cuts associated with sequestration as "unacceptable."

Some defense analysts say the Pentagon could absorb up to $1 trillion in cuts over the next ten years, citing the near doubling in the Pentagon’s base budget since 2001. Others contend that any reductions beyond those projected by the BCA’s discretionary spending caps would endanger national security. The House Armed Services Committee issued a memo in September 2011 assessing the impact of a full, "worst case" sequestration beginning FY 2013. The review claims that cuts beyond the "$465 billion" already slated for the Pentagon in the BCA "would break the back of our armed forces" without resolving the debt crisis.

Representative Adam Smith, the ranking Democrat on the Armed Services Committee, says the sequester issue is a diversion from the real problem that will cripple defense--the fact that long-term mandatory entitlement spending will crowd out the discretionary budget, including the Pentagon (NDIA). Army strategists are already planning for an "era of austerity" in the coming years.

What do analysts suggest?

A report from the Center for a New American Security outlines the strategic implications of four different budget scenarios and concludes that the Pentagon’s ability to execute U.S. global engagement strategy "will be placed at high risk if total national defense cuts exceed $500-$550 billion" over the next decade. The report says the military should focus on expanding the U.S. presence in the Western Pacific and Indian Ocean; containing hostile regimes and terror networks in the Middle East and Mediterranean; and limiting nuclear proliferation and regional conflict in South and Central Asia.

CFR’s Richard Betts says the United States "should pursue a much more modest military policy," that includes "more substantial cuts than are planned." The Pentagon should move toward a "mobilization strategy" that focuses on maintaining the military infrastructure necessary for a quick buildup, but that does not enter large production unless a threat emerges.

Speaking before Congress in September 2011, Jim Thomas of the Center for Strategic and Budgetary Assessments said a revised defense strategy might call for an increased security contribution from U.S. allies and also put emphasis on specific areas of the military that promote deterrence, such as special operations forces and global strike capabilities. In its effort to cut spending, Thomas says the Pentagon "must also act to arrest personnel cost growth," including military pay, healthcare, and pension costs.

A strategy guide from the National Security Network says the United States should move away from "troop-intensive operations," such as the missions in Iraq and Afghanistan, and shift to a counterterrorist mission. The report calls for a reduction in traditional ground forces and an increase in special operation forces and drone technology.

In Foreign Affairs, Joseph M. Parent and Paul K. MacDonald write, "The United States has fallen into a familiar pattern for hegemonic powers: overconsumption, overextension, and over-optimism." They suggest U.S. priorities should be deterring aggression against primary economic allies in Europe and Asia, and decreasing its military presence in South Asia and the Middle East. "While adversaries may fill the regional power vacuums," the authors note, "those costs would be outweighed by the concrete benefits of pulling back."