February 1, 2011
ISN Insights
Summary
Some in Washington want to cut US Department of Defense spending to help balance the federal budget. But can proposed cuts begin to make a dent in a national debt that exceeds $13 trillion?
Analysis
With the need for enhanced fiscal austerity gaining traction the world over, Washington, too, has begun to examine how the US federal government can balance its budget and reduce its debt. President Barack Obama assembled a National Commission on Fiscal Responsibility and Reform, also known as the fiscal commission, to offer suggestions in this area; its final report was delivered in December.
The US federal budget deficit reached $1.3 trillion in 2010, and the national debt now exceeds $13 trillion. Projections indicate that payments on the national debt will exceed $1 trillion annually by 2020.
While some of this debt was incurred because of the stimulus spending under both the George W Bush and Obama administrations, the national debt really began to balloon when the former president charged two wars on the national credit card, committing US forces to expensive conflicts in Iraq and Afghanistan without raising any revenue to pay for them.
A lean, mean Pentagon machine?
While debt reduction could be accomplished by raising taxes, a Republican House in unlikely to approve such measures - leaving only spending cuts as a means of balancing the budget. Popular entitlement programs like Social Security and Medicare (which comprise 63 percent of federal spending) are unlikely to take a hit; this leaves discretionary spending on the chopping block. The Department of Defense is by far the largest recipient of discretionary budget dollars, leading some to consider how a leaner Pentagon could help address the dismal debt picture.
Winding down or leaving the conflicts in Iraq and Afghanistan will reduce military spending. But White House budget projections for 2015 show defense spending $100 billion ahead of previous post-war peaks.
Meanwhile, the US government is still in deficit-spending mode: The package of spending and tax cuts passed by the lame duck session of Congress in December added over $1 trillion to the federal debt. In fact, the fiscal commission's report spoke of cuts in federal spending in 2015 and not before.
When it comes to defense spending, the commission report was vague, establishing the principle that defense spending had to be cut along with other spending in order to eventually re-establish fiscal health. More instructive was a preliminary report issued in November by the commission's two co-chairs which set some numbers and programs for the cuts.
The fiscal commission report suggested that a "firewall" be established between the security and non-security discretionary spending and "require equal percentage cuts from both sides." The commission would establish a separate cap on spending for overseas operations and suggested the establishment of a special commission "for terminating major weapons systems" and "for trimming redundant or ineffective weapons from the Defense Department's inventory."
The co-chairs' report was more specific, outlining $100 billion in "illustrative defense cuts" for the 2015 budget. Among the suggestions: reducing overhead - which represents the lion's share, at $25 billion - freezing salaries, cutting contracting, shrinking overseas bases and reducing research and development spending. The report also recommended ending procurement of the V-22 Osprey tilt-rotor aircraft, reducing the F-35 Joint Strike Fighter program and ending the Marine Corps expeditionary fighting vehicle program.
The Pentagon pushes back
But the Pentagon is resisting the notion of making defense the bill-payer for the country's overall fiscal woes. "If you cut the defense budget by 10 percent, which would be catastrophic in terms of force structure, that's $55 billion on a $1.4 trillion deficit," said Secretary of Defense Robert Gates, in reaction to the fiscal commission report. "We are not the problem."
Conservative think tankers also resist the notion of cuts to defense spending. "While there are efficiencies that can be gained in military spending," Alison Acosta Fraser, an analyst at the Heritage Foundation told the ISN, "these savings need to be reinvested in the armed forces to make up for decades of neglect in long-term modernization. The co-chairs' proposals would completely undermine the minimum capability of the armed forces to protect and defend the American people."
Todd Harrison, an analyst at the Center for Budgetary and Strategic Assessments, believes that some of the co-chairs' proposed defense cuts are doable while others present trickier propositions. Freezing military salaries could work, he told the ISN, because high unemployment in the private sector allows the military to achieve its recruitment and retention goals. (Obama has already rejected the notion of a pay freeze for uniformed personnel.)
Harrison supports reducing the US military presence in Europe and Asia, terming these "artifacts of the Cold War." He also supports terminations of weapons systems which as the Marine Corps' expeditionary fighting vehicle and the MV-22 tilt-rotor aircraft on the grounds that they "have been overtaken by technological advances in anti-armor and anti-air weaponry." Reductions in F-35 Joint Strike Fighter procurement are acceptable to Harrison because the platform is overpriced and "lacks critical performance characteristics, specifically range, needed to meet high-end challenges."
Savings on overhead, on the other hand, would be difficult to achieve, according to Harrison. "Past efforts have shown that the savings realized are far smaller than predicted," Harrison said. "Relying on these savings for more than a quarter of the proposed savings in the defense budget is a risky assumption."
Reductions in contractor support are also unlikely, according to Harrison. Research and development funding could be cut, Harrison said, but "funding for basic and applied research should be protected to ensure the US maintains its technological edge."
What is largely missing from the co-chairs' proposals, according to Harrison, "is an overall strategy that unifies the cuts behind a common purpose or set of objectives."
Also not addressed by the commission is how to muster the political will to make the proposed budget cuts a reality. Members of Congress are notoriously zealous when it comes to protecting defense programs that impact their constituents. And with the US federal budget still very much in deficit spending mode, cutting one-hundred billion defense dollars out of a trillion-and-a-half dollar deficit four years from now may not make it to the top of the congressional priority list.
Comments
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The proposed military spending cuts are not nearly enough. Why do we spending more on defense than the next 16 countries in the world. We spend about $700 billion and China spends less than $100 billion. And the $700 billion does not fully count everything we are spending in Afghanistan and Iraq because "nation building" is expensed in other ways.
Let's see how much defense we can buy for, say, $200 billion a year. That is twice what China pays. Yet China is a much larger country with many nearby nations that are either hostile or potentially hostile. We have no nearby enemies. Our "enemies" throughout the world are primarily those countries whom we have provoked by our outsized military activities. Cutting $400 to $500 billion a year on the military would not totally balance the budget, but it would cut it to a more manageable size. Also, it would reduce the balance of payments deficit because so much of our budget is spend overseas.
An even bigger (and better) target is US healthcare costs. At least for defense, it seems that we actually have the strongest military overall. But for healthcare, we tend to rank somewhere around 16th to 30th in the world even though we send over 17% of our GDP on it. France, which frequently is ranked first, spending about 11% of its GDP on health. And despite what some people claim, France's approach is not even socialized medicine. It is a better regulated and managed system that is mainly private. The more socialized systems, such as UK's, cost around 8% of GDP. They usually rank below France and above the USA. A "single payer" healthplan is probably the quickest way to bring the healthcare costs under control in the US. If we could cut just 10% from our healthcare costs, that would save us $230 billion.
Realistically, we can not just lop $500 billion off of defense per year, but we probably could cut from $700 to $600 billion without producing massive economic dislocations. If we added to that a $230 billion cut in health, we would probably have cut the budget enough to survive the next decade, factoring in an anticipated economic recovery with increased tax revenues.
The two parties could compromise by agreeing to revenue neutral tax changes. That means some will be taxed more and some less with the overall revenue remaining the same. The Democratic socialists could shift the tax burden somewhat while the Republicans ensure tax revenue would not rise. Also, here in Canada we now have tax free savings accounts to reward people who save rather than spend. You Yanks should consider it for this year's budget.