Puncturing the hot air balloons on defense spending

Introduction

In November, when lawmakers were discussing the defense budget, Defense Secretary Leon Panetta issued a dire warning: In a letter to Senators John McCain and Lindsey Graham, he wrote that a threatened deep reduction — about $1 trillion over the next decade — would create “an unacceptable risk in future combat operations.” It would, he said, leave America with the smallest Army since the eve of World War II, the smallest number of ships since World War I, and the smallest Air Force in its history.

But on January 5, Panetta enthusiastically embraced a plan to cut nearly half this amount from his anticipated budget over the same period. By modestly tweaking U.S. military strategy to accommodate these reductions, he said the country would still be able to “win today’s wars and successfully confront any enemy.” The chairman of the Joint Chiefs of Staff stood beside him and added that after absorbing the cuts, America would still be “immune from coercion.”

House Armed Services Committee chairman Buck McKeon (R-Calif.) — the top recipient of defense industry contributions in the current election cycle — promptly denounced Panetta’s plan as repackaging “our retreat from the world in the guise of a new strategy.” Several Republican presidential candidates have also raised concerns, and House Majority Leader Eric Cantor has promised to block deep cuts.

There is, in short, a lot of rhetoric being thrown about, partly because the military is at what President Obama has called “a moment of transition.” After 11 years of post-9/11 budget increases, followed by an end to the intervention in Iraq, the U.S. military has suddenly lost its political immunity from the austerity pressures afflicting other parts of the government.

The debate over how much to invest in national security will pick up speed in coming weeks, as lawmakers and others digest the changes outlined by Panetta on Jan. 26. But it will persist throughout this presidential election year. So, as a service to our readers, we offer the following field guide to the defense budget debate:

The Obama administration is talking about taking hundreds of billions of dollars away from the military. Is this a major cut?

Actually, describing it as a cut is a misnomer. The administration’s ten-year plan actually calls for an increase in the national security budget over the next decade — but it would scale back the 18 percent boost previously set for that period.

As Obama made clear in a brief speech while standing with Panetta on January 5, “the growth in the defense budget will slow, but the fact of the matter is this: It will still grow.” Panetta likewise said on Jan. 26 that the administration’s initiative represented “a real cut in terms of what our projected growth would be.”

Here’s the backdrop: Between 2000 and 2009, the average annual growth in national security budget authority was around 6 percent. That made spending go up by around two-thirds, to nearly $720 billion. Today, national security accounts for more than half of so-called “discretionary” spending — the portion decided annually by Congress.

Before Obama announced his plan, the Pentagon was counting on annual budget increases over the next 10 years — totaling roughly $500 billion, according to Panetta. While the new plan calls for its spending to drop in 2013, the budget would then revert to growth, administration officials say. They have not said what the average annual increase would be from 2017 to 2021, but two senior administration officials who asked not to be named said the result after 10 years would still be a larger budget, even after inflation is taken into account.

That means Obama’s proposed changes will shift actual spending less than one percent annually. If approved, the change would be smaller than the genuine reductions that followed the Korean War (20 percent), the Vietnam War (30 percent) and the Cold War (30 percent).

So what does the administration want to change, exactly?

In early January, deputy defense secretary Ashton Carter explained that under its new strategy, the military will not retain “the large force structure necessary to sustain long, large-scale stability operations” like the incursions in Iraq and Afghanistan. He also said “we are obviously going to have less modernization” and as a result, the Pentagon would “stop certain things, pause certain things, slow down certain things.”

Panetta announced on January 12 that around 7,000 U.S. troops in Europe will be removed — around 9 percent of the total there. He added on January 26 that the permanent overall size of the Army and the Marines would each shrink 14 percent, beyond the 5-8 percent cuts the Pentagon had previously planned.

But no major weapons systems would be cancelled outright, as Panetta’s predecessor did in 2009. No cuts were announced in existing nuclear forces or the fleet of 11 aircraft carriers, for example. The initial construction of a new fleet of nuclear warhead-carrying missile submarines would be delayed two years, while the creation of a new strategic bomber would proceed.

Construction of a few other ships would be delayed, while some ship purchases would be reduced and 10 older ships would be retired earlier than planned. Some transport aircraft would also be retired, the modernization of Army helicopters would be deferred, and purchases of the Air Force’s costly F35 fighter jets would be slowed due to technical troubles. A new Army ground combat vehicle would also be slowed.The current version of the Air Force’s Global Hawk drone program – which has had major cost overruns and poor reliability — would be terminated early.

Panetta also promised $60 billion in new savings from heightened efficiency, calling the Pentagon — which houses more than 23,000 employees — “a very big bureaucracy.”

Where would these changes leave the United States military, compared to others?

Obama said on January 5 that after his proposed changes, U.S. military spending will still be “larger than roughly the next 10 nations combined.”

He did not list them, but those countries are, in rough order (according to data compiled by the International Institute of Strategic Studies and the Stockholm International Peace Research Institute), China, Britain, France, Russia, Japan, Saudi Arabia, Germany, India, Italy, and Brazil. Experts have complained that Obama understated the American predominance, by not saying “the next 17 or 18 nations combined,” but China’s military budget is opaque, making this calculation imprecise.

Furthermore, when Panetta complained about the effects of a doubling of the budget reductions, he failed to mention that the number of U.S. ships and planes has long been declining. The Pentagon prefers to buy fewer but more costly weapons, which it expects to be more capable. For example, the Navy spends much more today than it did in 1990, but it has cut the number of its ships in this period from 570 to 285; similarly, the Air Force has cut the number of its active duty aircraft and helicopters from more than 5,000 to around 3,750.

Thirty years ago, this trend caused Norman Augustine, then an executive at the Martin Marietta Corporation, to warn that by the year 2054, the entire defense budget “will purchase just one aircraft,” to be shared by the Air Force and the Navy for three and a half days each, and in leap years with the Marines.

But there is no dispute that the higher capabilities of modern weaponry make simple numerical comparisons inadequate. Panetta’s airplane tally, for example, only counted manned airplanes, while 41 percent of the service’s winged inventory now consists of unmanned drones.

Another common way of measuring a nation’s overall security investment is to compare its related spending to the size of its economy — an approach that ignores the fact that security threats are rarely proportional to a country’s economic girth and more often related to its policies and its neighbors.

The U.S. currently spends 4.7 percent of its GDP on security, less than some countries in the nervous Middle East, like Saudi Arabia, or in the conflict-prone Horn of Africa, like Eritrea. But traditional military allies in Europe — Britain, France, and Germany — all spend much less than the United States, and the average among all 27 members of the European Union is 1.63 percent of GDP, according to SIPRI data.

Budget trims under way throughout the continent will likely pull that number down even more, meaning that Washington has lately been bankrolling NATO — the principal alliance with which its armed forces operate. As Ivo Daalder, the U.S. ambassador to NATO noted at a reporter’s forum in December, the United States formerly “accounted for about 50 percent of NATO defense spending; now it accounts for 75 percent.”

Defense spending creates jobs. Given the unemployment rate, is this a good moment to be trimming such spending?

A fifth of all federal spending buys goods and services for defense. But some studies suggest that other forms of government spending have a higher long-term impact on employment. There has not been a recent, peer-reviewed, economic study of how the cuts being debated may affect the nation’s overall employment rate — in the short term or the long term.

Last October, the Aerospace Industries Association, the major defense contractor group, predicted a million jobs could be lost from the ripple-effects of potential cuts in weapons procurement alone. But the study foresaw much deeper cuts than Obama has actually proposed, and did not look at other, related impacts of making such a tweak in the federal budget.

For example, Harvard economist Martin Feldstein told a House committee in October that making a sizable dent in the deficit would boost the confidence of businesses and consumers. As a result, he predicted that their resulting new investments and spending would ameliorate some of the job losses.

A University of Massachusetts study in December — meant to rebut the industry’s analysis — emphasized that defense spending typically creates fewer jobs than spending a comparable amount on health care, clean energy projects, and education — or simply cutting taxes to let consumers spend as they wish.

Obama, in his State of the Union address on January 24, seemed to embrace this concept when he urged lawmakers to “take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest” for public works projects.But his formula would shift only a few tens of billions of dollars into new spending, and making such a shift stands little chance of winning the approval of the Republican-controlled House.

Was Obama’s defense budget proposal provoked by a careful rethinking of military strategy, or primarily by a desire to trim the federal deficit?

“The important part of this process is that the strategy come first,” White House spokesman Jay Carney said on January 3.

But let’s look a little more closely:

In February 2010, when the Pentagon announced a new military strategy after a year-long study, then-Secretary of Defense Robert Gates called it an “important and historic” account of how the Pentagon would spend its money for at least the next four years. That study explicitly foresaw the winding down of the conflict in Iraq. So the Defense Department — despite abundant outside criticism of its review — considered its strategy and spending levels set.

The study results nonetheless became rubbish the following year, because of intense political debate about the size of the deficit. In his signature April 2011 speech on the deficit, Obama promised a variety of savings, gave Gates a pat on the back for cutting a total of $400 billion in “wasteful spending,” and then said “I believe we can do that again.” He also backhanded the study, by calling for a “fundamental review of America’s missions, capabilities, and our role in a changing world” — as if one had not just been done.

Gates was not informed of Obama’s proposal — which was meant to be implemented over a dozen years — until a day or so before it was made, according to officials involved in the process. White House officials now say they did not tell Gates earlier because he was traveling overseas and they wanted to convey the news in person.

But a former senior defense official privy to key deliberations says the White House provided no earlier heads-up because the idea came “out of thin air…. There was no logic, no strategy, no evaluation.” The Pentagon was “not looking to find another $400 billion in cuts” and so it was simply left out of the loop, the official added.

“There was not a big plan put together” before the April announcement, an OMB official confirmed. But Obama was not taking numbers “out of the sky,” the official said, since independent groups had earlier recommended much steeper defense spending cuts.

Since OMB director Jack Lew — the incoming White House chief of staff — and other top administration officials favored an even larger, faster budget cut, Obama’s initial proposal to cut another $400 billion over a dozen years was changed by the White House, after an argument with the Pentagon, to $487 billion over ten years.

So, in summary, the administration’s second strategic review, which started in April 2011 and ended on January 5, was not motivated by the Defense Department’s conviction that it was time for a new direction.

It was instead an effort by the military service chiefs to decide which missions they still wanted to accomplish after Obama and his top national security advisers decided — as part of their new economic policies — to shoehorn the Pentagon’s decade-long spending plan, estimated to cost around $6.25 trillion, into a box roughly 7 percent smaller.

What about something called “budget sequestration”? Isn’t that going to make these numbers change a lot anyway?

Sequestration, according to the dictionary’s definition, involves holding something temporarily — like members of a jury or the property of a defendant — before letting it go.

Many pundits and policymakers in Washington are nonetheless agitated about the prospect that the Pentagon will be forced to cut up to $500 billion beyond what Obama has proposed, as the result of a “sequestration” deal with Congress that requires spending reductions throughout the government unless certain deficit targets are met.

This would essentially reduce the Pentagon’s current budget by about 16 percent in the year 2021. As the Stimson Center has pointed out, such a trim is comparable to shaving just three-quarters of one percent from the defense budget annually — in absolute dollars, not including inflation — from 2013 to 2021.

The fears over sequestration come from the bluntness of the scalpel: The deal would require the Pentagon to distribute the additional cuts equally among its major program categories, although it would still retain some discretion within those categories. Spending on Afghanistan would be exempt and Obama could also exempt military personnel if he chooses. But Panetta would not have the liberty of choosing to preserve or increase funding for the overall tasks he considers most important.

This restriction could be changed by Congress, and the sequestration itself can be reversed if Congress wishes to do so before it takes effect in January 2013. While many Republican lawmakers have threatened to undo the sequestration deal, Obama has promised to veto such plans, and the Republicans don’t appear to have the votes to override such a veto.

Nonetheless, few who follow defense spending closely expect the defense budget to be deeply cut by sequestration. Asked how he plans to carry out the requirement, Panetta told an audience at Ft. Bliss, Texas, on January 12, “I’m not planning to do it at all.”

One reason for ignoring the threat is that the defense industry is likely to block it. In 2011 alone, more than a thousand defense and aerospace lobbyists spent $46.6 million to influence Congress, according to an estimate by the nonprofit Center for Responsive Politics. The industry also gave lawmakers $22.7 million for the 2010 elections, and it has already contributed another $8.5 million to influence the election outcome in 2012.

Also, key Democrats have said their ambition, in striking the sequestration deal, was never to cut defense spending bluntly. Instead, they sought to draw on the industry’s powerful influence to pressure Republicans into accepting a tax increase on the wealthy that would lift the threat of sequestration. For instance, Sen. Armed Services committee chairman Carl Levin, a Democrat from Michigan, has complained that sequestration would be highly damaging. But as he said on November 7, “I don’t want to take the pressure off to reach a deal by talking about avoiding or eliminating the effects of sequestration.”

Is that the end of the story, or will the defense budget be changed more than Obama has proposed, anyway, even without sequestration?

While standing next to Panetta on January 5, Army Gen. Martin E. Dempsey, the Joint Chiefs of Staff chairman, signaled that he knows 2012 is the beginning of a new era for the military’s budget. He called the department’s new strategy “about right, for today.”

Industry officials and independent experts say two political factors will likely provoke more cuts in the years ahead: First, Republicans are no longer united behind high military spending. The party is divided between national security hawks and deficit hawks, including many Tea Party members supportive of shrinking military as well as non-military spending. Second, as the overall budget shrinks, Democrats will regard defense spending as a competitor with social programs they wish to protect.

Gordon Adams, a Stimson Center expert and former Office of Management and Budget assistant director, said he expects a total cut of $1 trillion to $1.5 trillion over the next decade. “This is, after all, the lowest level of existential threat we have ever faced,” said Adams, who helped oversee part of the 31 percent cut in national security spending between 1986 and 1998. “Barring an attack by the ghost of Bin Laden on New York city, this is inevitable.”

The bipartisan National Commission on Fiscal Responsibility and Reform, popularly known as the Bowles-Simpson commission, said in December 2010 that the United States needs to trim the overall federal deficit by $4 trillion by 2020 to avoid impeding economic growth. The deep budget cuts required to avoid sequestration – including defense spending changes double the amount proposed by Obama — would only do half the job. So the pressure to make deeper defense cuts will not disappear anytime soon.

So what’s the takeaway here?

Obama’s national security spending plan does not call for a net budget cut over the next decade. If his proposal is enacted, U.S. defense spending will continue to dwarf the rest of the world’s. The new U.S. military strategy was concocted to accommodate proposed spending trims, not vice versa. Sequestration is a threat, not a promise. And no matter what politicians say or do this year, U.S. defense spending will remain vulnerable to real cuts. The important question in the years ahead is: Which military programs will survive and which will go away?