Budget and Fiscal Realities

Perhaps the greatest threat to our national security is our failure as a nation to strike an intelligent balance between social infrastructure on the one hand and legitimate defense requirements on the other. That there is such an issue at all will surprise many visitors to this site, since this is the richest country the world has seen and there is no legitimate foreign threat. Yet, we have 42 million citizens without health insurance, and the World Health Organization recently rated the US health care system 37th in the world (noting that conditions in some of our inner cities and rural areas approach those in sub-Saharan Africa).At the same time, we are spending roughly three times as much on defense as any conceivable combination of opponents, put together (Figure). In spite of this, service leaders in the Pentagon, politicians in the administration, and certain members of Congress are demanding that we spend even more. The current POMs (service spending proposals), for example, show the bow wave exploding in 2006 and 2007-they will go far above the President’s fiscal guidance unless (1) President increases guidance or (2) DoD “balances” the books with negative wedges (which is more likely). Budgets will have to increase beyond 2007 if the current force structure and modernization program are maintained. As strange as it may seem, even these plans would not substantially modernize our forces or provide for restoration of lost readiness, since much of the increase goes into procuring small numbers of Cold War-era weapons (as explained in, for example, Comment 364).

Implications: 2001 – 2015

We are now entering what may be the final years of unprecedented prosperity, when hard choices between guns and butter can be postponed or ignored entirely. If the country does go into recession in 2001-02, with unemployment approaching 10%, the numbers of uninsured exceeding 60 million, and the budget sliding into deficit, the President and Congress may come under enormous pressure to address these social issues by reducing defense spending. Needless to say, this would wreck havoc on an already risky procurement plan and cause modernization and readiness to sink to unprecedented levels. And even if the economy stays relatively robust, we will, within the next decade, be forced to confront the politically “untouchable” areas of Social Security and Medicare, which will begin to go into the red as soon as 2015.

Hard decisions now could lay the foundation for surviving economic turbulence, while actually improving readiness. Business as usual is a certain recipe for disaster. Defense planners and particularly QDR writers need to consider how these external pressures on spending could affect DoD planning and budgeting.

8/02/06 Budget tutorials on the cost of the wars in Iraq and Afghanistan, by Winslow Wheeler. Part 1: So, You Think You Know the Cost of the Wars?; and Part 2: Congress and the Pentagon, Co-Abusers of the War Budget.

05/29/06 Amnesty and Continued Low Skill Immigration Will Substantially Raise Welfare Costs and Poverty, By Robert Rector

3/21/06 Congress’ Earmark Reform Fiasco, By Winslow Wheeler, Straus Military Reform Project

Briefing on DOD’s QDR and 2007 Budget, By Winslow Wheeler, Straus Military Reform Project

Defense Budget Tutorial #3B: Pork: What is it? By Winslow Wheeler

Defense Budget Tutorial #3A. Pork: Where is it? By Winslow Wheeler. Where does Congress bury those “pork” projects in defense bills, and how much of this “earmarking” has been going on, especially on since Sept. 11 when defense spending should have become serious business? This tutorial explains that it’s all hidden in plain sight-there has been more foolishness than you might think, and it’s growing.

Defense Budget Tutorial #2: The Smoke and Mirrors in Congress’ Defense Appropriations Bills: You’ll Need a Rosetta Stone. Winslow Wheeler continues his guided tour through the defense budget maze.

“Defense Budget Tutorial #1: What is the Actual Size of the 2006 Defense Budget?” Veteran Senate staffer Winslow Wheeler uses his insider’s experience to show the rest of us how much we’re really spending on national defense.

CBO Monthly Budget Review Watch the surplus shrink right before your very eyes. (On the site of the Congressional Budget Office, in PDF format.)

OMB Mid-year Report, August 2001. Confirms that except for Social Security, the “surplus” is gone.

The latest “Plans / Reality Mismatch” (also 13KB .pdf file) As detailed in Comment 364, simply throwing more money at the Defense budget not only doesn’t solve modernization and readiness problems, but it creates an intractable conflict between military and social priorities during in the next administration. Although there is still time to resolve this dilemma, Congress and the presidential candidates, driven by short-sighted political calculations, are setting the stage for enormous disruptions in either our military capabilities, or our social well-being, or both.

MEDICARE: New Spending Estimates Underscore the Need for Reform. GAO-01-1010T, July 2001. The impending train wreck between defense spending and Social Security/ Medicare/ Medicaid. By 2030, spending on these accounts will absorb some 75% of total federal revenue, even assuming Social Security surpluses materialize for the next 20 years and are all saved. “Sometime during the 2040s, government would do nothing but mail checks to the elderly and their health care providers.” This is obviously untrue: These payments will be made electronically. (112 KB .pdf file)

HILLINT Newsletters on how defense issues are faring in Congress. Good source of information on actions taken by the various committees on bills affecting DoD.

Budgeting for Defense: Maintaining Today’s Forces. The CBO concludes: Our budget won’t fund our strategy (surprise!). For this report, the CBO limited its investigation to implications of strategies and programs already in place and did not examine whether the current 2-war strategy is reasonable or whether attempting to carry it out with Cold-War-era weapon systems is a wise use of resources. Read the original CBO report (229K .pdf document) and the Director’s statement to Congress.

Politicians of all stripes have been salivating over the prospects of $2.2 billion in surpluses (excluding the Social Security surplus). But in just a few days, horse trading at the end of the 106th Congress pushed the FY 2001 budget $100 billion over the 1997 ceiling. As a result, a realistic estimate of what might become available (including for defense) has shrunk again, to around $700 billion, and even this assumes the good economic times continue for 10 more years. Read the full story by the Concord Coalition.

THE LONG-TERM BUDGET OUTLOOK, October 2000 New CBO report suggesting that the current budget surplus will rapidly melt once baby boomers start collecting social security and Medicare: “If the nation’s leaders do not change current policies to eliminate that imbalance, federal deficits are likely to reappear and eventually drive federal debt to unsustainable levels.” The current surplus, in fact, “stems from unexpected increases in revenue and slower-than-anticipated growth in some spending rather than from changes in policy.” Making policy assuming that the surplus will last forever could be considered front-loading at the national level.

Status of the Social Security Trust Funds,” by the Medicare and Social Security Boards of Trustees, April 2000.

“LONG-RANGE ESTIMATES OF SOCIAL SECURITY TRUST FUND OPERATIONS IN DOLLARS.” Appendix B to the Trustees’ Report. Scroll down to “Figure III.B1.–Estimated OASDI Income and Outgo in Constant Dollars,” to see when we run out of money.

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