It now also appears that Congress will stave off the worst effects of the sequester at least insofar as the Defense Department is concerned. The sequester is meant to force uniform cuts not only across budget accounts, but also across the far more detailed levels of “program, project and activity.” That means that the Defense Department cannot implement larger reductions in a program of lesser urgency in order to minimize those in another, higher-priority program. On the other hand, the department has obtained some relief in the form of the Fiscal Year 2013 Continuing Resolution, which funds the Administration’s defense budget request, though at levels mandated by the sequester. The Continuing Resolution also affords the department some additional flexibility by raising the ceiling for moving funds from one budget account to another, though such major “reprogramming actions” will, as in the past, require prior congressional committee approval.
Congressional leaders are now confidently predicting that the sequester will not survive the Fiscal Year (FY) 2014 budget process. They assert that Congress will come up with some formula to obviate any repeat of sequester-induced misery. True or not, more defense cuts are in the offing that could amount to at least $15 billion annually through FY 2020. These cuts would come hard on the heels of not only the annual $47 billion reductions mandated by the Budget Control Act but also earlier cuts ordered by then-Secretary of Defense Robert Gates. Moreover, any additional reductions for FY 2014 and beyond would be measured against the sequester-driven baseline of $501 billion enshrined in the 2013 Continuing Resolution. In other words, beginning in FY 2014, the Department of Defense is likely to have to reduce its budgets by at least some $60 billion annually throughout the remainder of this decade.
Of course, it is possible, perhaps even likely, that confident predictions regarding the sequester’s demise will prove misplaced. If sequestration does not touch off apparent calamity or political anxiety in the White House, it is much more likely to persist. After all, recall that no one really believed at the time that the sequester would ever happen. Indeed, it was precisely because the sequester lacked credibility that the White House contemplated it in the first place as a means to pressure Republicans into accepting tax increases, especially on the wealthy, in order to protect military spending. The White House reasoned that this would undermine the GOP politically. This reasoning turned out to be wrong.
The White House is continuing to bet that somehow the sequester will no longer be in place in 2014. To that end, the Administration has produced an FY 2014 budget that is $52 billion above the cap for defense spending imposed by the sequestration provision of the 2011 Budget Control Act. Should the sequester remain in force, the Department of Defense (DoD) once again will have to implement across-the-board cuts to come down to the cap. No doubt the personnel accounts will again be exempted, as they have been in 2013, and the brunt of the reductions will once more fall upon the operations and acquisition accounts, with the notable exception of those elements of the Defense Health Program that are included in the operations accounts and that will be protected as military entitlements.
However it happened, the sequester is a very stupid way for America to manage itself out of its budget problems. Indeed, it may further aggravate them. But this is what happens when the political class is focused on constructing political coalitions rather than governing coalitions, and especially when the Obama Administration is set above all else on winning the House in the 2014 mid-term elections. Why compromise when the prospect of a (temporary) one-party state is so close at hand? If the White House judges that another year or two of sequestration will hurt Republicans politically more than it will hurt Democrats, it is very likely to continue. Its FY 2014 defense budget clearly reflects that judgment.
hould the sequester persist, the defense budget would have to be reduced through FY 2021, making for a total of $1.2 trillion. Unless the Administration takes major steps to reduce DoD’s overhead costs, it will have to cut back on force levels, force posture, deployments and other operations. As then-Secretary of Defense Leon Panetta outlined in a letter to Senators John McCain and Lindsay Graham on November 14, 2011, the sequester would lead to the smallest Navy since before 1915, the smallest Army since 1940 and the smallest Air Force ever. He added that new research and development programs—such as that for a bomber to replace a fleet that is a half-century old, for the new Littoral Combat Ship, and for Army modernization—would all have to be terminated.
Panetta was not merely scare-mongering. In the absence of other reforms, and perhaps even if reforms are implemented, the numbers still bear him out. The greatest consequence of such radical changes to America’s force posture would be to diminish its overseas presence. The United States simply cannot maintain its forward naval, air and land force deployments in a long-term sequester-driven environment. Panetta addressed himself to the sequester, but his observations apply in general terms even if considerably more defense cuts are added in place of the sequester to those already programmed for the next several years.
America has become used to being able to respond rapidly to overseas crises and, arguably more important, to being able to deter potential aggressors as a result of its worldwide deployments. Both allies and potential adversaries have behaved accordingly. A drawdown in deployments, the inevitable product of annual budget cuts amounting to $60 billion (not to speak of more than double that amount), would unnerve allies, encourage adversaries and dissuade historically non-aligned emerging powers such as India from moving closer, both politically and militarily, to the United States.
America is already being perceived as turning inward, as being focused primarily on “nation building at home.” Further reductions in America’s overseas force posture, beyond those already prompted by the reductions imposed by the FY 2013 sequester, would turn that perception into an undeniable reality.
The impact of such a retrenchment would be felt most strongly in East and West Asia. Fiscal constrains are already undermining the Obama Administration’s much-vaunted “pivot to Asia.” Admiral Samuel Locklear, Commander of American forces in the Pacific, recently testified before Congress that budget constraints were forcing the cancellation of some exercises and other engagement activities in the region. More ominous, perhaps, are reports that plans to redeploy 2,500 Marines from Okinawa, Japan, to Darwin in Australia’s Northern Territory by 2017 are beginning to unravel. Washington appears to be hedging on its initial commitment to fund all the costs of the Marines’ move to Australia. At the same time, the Labour government of Australian Prime Minister Julia Gillard, currently lagging in the polls behind the Liberal/Country opposition and facing serious budget issues of its own, is in no mood to cover any part of the bill. Privately, Australian officials are pessimistic that the plan will ever be fully implemented. The ramifications for regional perceptions of American power are likely to be severe, particularly with respect to Chinese and North Korean behavior.
The Chinese government has become increasingly vocal about its intention to revive what it considers to have been its dominant position in East Asia, especially in Southeast Asia. It views the United States as an interloper, not only because it supports Taiwan, which Beijing continues to view as a renegade province, but also because it challenges China’s claim to sovereignty over almost all of the South China Sea. Should the United States no longer maintain a sufficiently credible naval presence by means of which it underscores the status of the South China Sea as an international maritime commons, no other state will be able to fill the vacuum. The result would likely be a level of instability the region has not seen in four decades.
Ongoing Sino-Japanese tensions over the Diaoyu/Senkaku Islands could also be affected by a change in American deployment patterns. While China might be emboldened to confront Japan, Japan in turn could conclude that in the face of receding American power it must respond in kind, lest it set a precedent of cascading retreat. Indeed, the government of Japanese Prime Minister Shinzo Abe has announced the first increase in Japanese defense spending in 11 years. Prime Minister Abe also recently concluded a security agreement with Mongolia, for centuries the focus of Chinese fears of invasion from the north. And for the first time since World War II, Japanese forces conducted an exercise this February involving a mock assault on islands occupied by a hostile adversary. This time the adversary was not the United States but was clearly China, and American military units led the exercise, named Iron Fist.
Nevertheless, Japan clearly is concerned about American staying power in the Pacific, and a further decline in the American presence could prompt a serious increase in Japanese defense spending, which is still less than 1 percent of GNP. That would not necessarily be a bad thing in the long run, but it certainly would fly in the face of America’s grand strategy of forward deployment to suppress security competitions at either end of Eurasia.
The perception that fiscal constraints will undermine the Administration’s pivot to Asia also appears to be leading the South Korean government of President Park Geun-hye to seek a greater military role in defending against an increasingly belligerent North Korea. Seoul is also seeking a new agreement with Washington that would permit it to reprocess its spent nuclear fuel, much as Japan is able to do under its arrangements with the United States. Any such agreement would include clauses preventing the revival of South Korea’s nuclear weapons program, which President Park’s father, President Park Chung-hee, grudgingly terminated under U.S. pressure four decades ago. Nevertheless, any indication of a reduction in America’s commitment to a dominating military presence in East Asia could lead Seoul to undertake a new, highly secret program to develop its own nuclear weapons capability. The consequences of that are incalculable, but not benign, given the longstanding mutual suspicions that the two Koreas, China and Japan harbor for one another.
he situation in West Asia (that is, the Arabian Sea/Arabian Gulf region) could deteriorate even more quickly, since the entire region is already embroiled in an unprecedented level of turmoil. A significant drawdown of the American presence would not only encourage Iran to press ahead with its nuclear program; it would probably trigger a race for nuclear arms across the region. This means, unfortunately, that things that are arguably rational in military terms may soon become unwise in political and diplomatic terms.
Tehran already is exploiting the unintended consequences (for America, that is) of the all-too-rapid departure from Iraq. Administration officials are grudgingly acknowledging what all in the region have recognized for some time: A Shi‘a tyrant has replaced a Sunni dictator, with the result that Iran is now the dominant influence in Prime Minister Nouri al-Maliki’s Baghdad. Not surprisingly, the Sunnis are restless. Already some Sunni leaders have declared a new jihad in Mosul, while many in Anbar and western Iraq are watching developments in neighboring Syria with the expectation that a new Sunni regime in Damascus would support a revived insurrection against the Shi‘a power in Baghdad.
Further cutbacks in America’s regional presence will make it even more difficult for the United States to have any significant influence over whatever government comes to power in Damascus. The deteriorating situation in Syria helped President Obama forge a limited reconciliation between Turkey and Israel that both sides realized was long overdue. But the restoration of Turkish-Israeli relations cannot substitute for an active American response to developments in Syria. Israel and Turkey share America’s fear of the emergence of a radical Islamic regime in Syria. Nevertheless, it is not clear that all three would react the same way should such a regime come to power. Both Turkey and Israel have a history of undertaking preemptive military actions that do not necessarily further American interests. The absence of American forces in the region could result in Israeli or Turkish military strikes that could transform the Syrian civil war into a full-fledged regional conflict.
Finally, by reducing its Mideastern presence, Washington would lose all hope of restraining an Israeli attack on Iran. In addition, it would forfeit any ability to prevent any outright conflict that might take place in the Eastern Mediterranean, where recent gas exploration has exacerbated tensions between Greece, Cyprus and Israel on the one hand, and Turkey, Lebanon and Egypt on the other. The recent reconciliation between Israel and Turkey will ease tensions over the exploitation of the gas fields (there is even talk of Israel selling natural gas to Turkey). Still, Israel’s increasingly close ties with both the Republic of Cyprus, whose legitimacy Turkey does not recognize, as well as with Greece, Cyprus’ patron and Turkey’s historic rival, point to a far more complex situation in the Eastern Mediterranean that could spin out of control.
Even as the United States has moved with all due deliberation to extricate itself from the Middle East, it has stepped up its military role in Africa. Apart from maintaining long-standing programs to train regional military forces, Washington is now actively supporting the French operation in Mali to an extent that would surprise most Americans if they were aware of it. In addition, new drone bases in West Africa, with small Marine units deployed there, are in prospect.
On its face, the sequester should have little impact on these developments, whose costs are miniscule compared to those incurred in, say, Iraq. But America has been down this path before. Vietnam started as a low-cost mission involving support for none other than the French. Once again, it appears, the U.S. military may become enmeshed in a conflict environment about which it knows little, and which cannot be remedied by Power Point presentations. In this regard, the sequester or any additional budget reductions may actually be a good thing if they restrain a new burst of expensive American interventionist exuberance. Certainly, another costly, drawn-out conflict, such as several that are in prospect in Africa, would offset whatever savings might have been engendered by the 2011 Budget Control Act.
hile there is much to be said for reducing defense spending in a host of areas, all but the most obtuse budget hawks agree that the sequester is the worst possible way to rationalize the defense budget. The sequester should therefore be superseded by aggressive actions to reduce Defense Department overhead, as well as by revoking obsolete legislation that adds to a variety of program costs. Whether the defense top line should continue to come down in light of rational programmatic savings, and by how much, are entirely different matters, however.
The opportunities for significant savings are legion. For example, the Department of Defense wastes billions of dollars funding contracts in support of contingency operations. In the 2001–11 period, as much as $60 billion was squandered through waste, fraud and abuse, according to the Commission on Wartime Contracting in Iraq and Afghanistan. Most of those wasted funds came out of defense contracts. Yet contracting will not come to an end with the withdrawal of most American troops from Afghanistan. A force that could exceed 10,000 is likely to remain there for an indefinite period (assuming no regime change); contractors could constitute the majority of that force.
The Department of Defense has resisted implementing approximately half of the commission’s recommendations, and it has opposed legislation that would force its hand in this regard. Congress must therefore mandate actions such as the creation of two new senior-level positions in the Joint Staff and the Office of the Secretary of Defense to oversee, and to be accountable for, contractor activity in contingency operations. In addition, Congress should do more to ensure enforcement of foreign sub-contractor adherence to Federal and Department of Defense acquisition regulation. It should also approve the creation of a Special Inspector General for Contingency Operations.
There are far too many contractors working for DoD in non-contingency environments as well. The number of contractors skyrocketed during the post-Cold War drawdown of the 1990s. These contractors were not of the “metal-bending” variety; they did not provide any goods to the department. Instead, many were service contractors, like the vast majority of those who worked in Iraq and Afghanistan. They essentially did the same work as DoD civil servants, providing what was euphemistically termed “staff augmentation.” All too often the contractors were either military personnel or civil servants who retired and, within weeks of retirement and sometimes even days, were back at their old jobs and old desks, usually being paid far higher salaries and supplemented by government pensions for which they were newly eligible.
“Staff augmentation” has enabled many civil servants to offload their work to contractors. Contractors attend meetings in place of civil servants. They work long hours, often on weekends, preparing briefings for which civil servants are responsible, while their government bosses clock out at five p.m. The entire system has become corrosive, undermining the efficiency of government civilians and rerouting badly needed funds from the uniformed services to the contractor corps. The fact that the department has only recently undertaken an effort to determine how many contractors are in its pay underscores its lack of managerial or budgetary control over this major element of its workforce.
We can cut back significant numbers of staff augmentation contractor personnel without the government having to incur any termination liabilities. Most staff augmentation contracts involve a base year with additional option years. In addition, many major contracts, called “flywheel” contracts, have extremely high contract ceilings, which often can only be reached through the addition of new “tasks” to the base contracts. There is nothing to prevent DoD from refusing to pick up option years that extend staff augmentation contracts, or to limit flywheel contracts to those tasks approved at their initiation.
Were either the Secretary of Defense or the Deputy Secretary of Defense to sign a memorandum terminating all staff augmentation contracts immediately after their base year (or years, if there is more than one), the effect would be virtually instantaneous: Thousands of contactors would no longer be funded. A memorandum preventing the addition of new tasks to current contracts would prevent more contract personnel from joining the ranks of those carrying out jobs that could just as well be done by government civilians.
Such actions would provoke an outcry on the part of the government services community. Nor will DoD civilians be pleased that they will have to work harder at their jobs. Nevertheless, the shadow bureaucracy known as contractor support simply must be cut down to size, and not only for fiscal reasons. Government bureaucrats must be more productive in order to save critical operations and weapons systems programs from being terminated.
It is noteworthy in this regard that Secretary of Defense Gates initiated an in-sourcing program meant to reduce the number of staff augmentees and shift their workload to the civil servant corps. Unfortunately, his plan was taken as a signal for DoD managers to hire more civilians rather than to squeeze more productivity out of those already on the payroll. In any event, the effort appears to have fallen by the wayside. There is little talk today of in-sourcing along the Pentagon’s “E” ring or its tentacle of corridors.
The effort to in-source should be revived, but the civilian workforce should be cut back as well. There are upwards of 100,000 more civil servants in the department today than in 2000, with few noticeable changes in civilian output. DoD should therefore cut back both the contractor and the civilian workforces to their FY 2000 levels. If they won’t do this on their own, Congress needs to force them.
The sequester initially spawned a plan to furlough personnel one day a week. As with everything else associated with the sequester, a 20 percent reduction in days worked is stupidly indiscriminate. DoD has now managed to reduce the furloughs to less than two weeks for most personnel, or just over two days a month for the remainder of FY 2013. Whether 20 percent, or 15 percent, or any percentage, the use of furloughs makes little sense. Nevertheless, any effort to replace the sequester should include a 20 percent reduction applied selectively to those civilians who draw salaries that bear no relation to their productivity.
It is well-known that any reductions in the civilian force usually lead to layoffs of DoD’s most junior personnel. There people are usually younger and more motivated than their mid-level supervisors, and they cost taxpayers less. Since civil service layoffs invariably enflame the unions, the department should offer retirement bonuses solely to mid-level officials in the GS-13 to GS-15 range. Their departure would not only save money, but also create new career advancement opportunities for talented, younger personnel.
The department has also been less than aggressive in rooting out waste in the management of other operations, particularly base operations. For decades, the Comptroller’s office and the office now called Cost Analysis and Program Evaluation (CAPE), which Robert McNamara established as the Office of Systems Analysis, have struggled to get a handle on how base operations funds actually are spent. Thus far they have not succeeded. The Comptroller’s office conducts a mid-year spending review to determine the “burn rate”—the rate at which programs spend their funds relative to the likelihood that all those funds will be expended by the end of the fiscal year. With respect to base operations, however, it can only do so at a relatively low level of resolution, with the result that significant sums probably escape scrutiny.
There are ways to remedy this particular situation. Increasing the number of spending reviews per year might shed light on what is happening in these accounts. Creating an auditing function within the Comptroller’s office, using field representatives as their counterparts do in the commercial world, would also help. These auditors would focus specifically on accounts such as base operations that seem impervious to higher-level scrutiny.
Another area ripe for reform is that of compensation for military personnel, which President Obama exempted from the uniform reduction mandated by the sequester. It is well known that the Defense Health Program, in particular, has spiraled out of control. Military health, which now amounts to some $50 billion annually, exceeds the entire defense budgets of almost all our allies.
Military retirement is also in dire need of reform, though the solution most point to—raising retirement eligibility beyond the current twenty-year level—would violate the fundamental compact with the government that young men and women enter into when they commit to risking their lives for the nation. Nevertheless, a system for which personnel become eligible at approximately age forty, and from which they will benefit for about another half century while most are pursuing active and productive careers, simply cries out for reform. Changing the way retirement payouts are calculated is another matter. Since the government funds military retirement on an accrual basis, several simple, easy-to-implement changes could quickly yield savings measured in billions of dollars.
Health and retirement are but two of the many benefits available to our men and women in uniform. Savings are possible in other areas that will have no direct impact on our forces. A case in point concerns military commissaries, huge businesses that could be privatized. Elements in the Pentagon have for years resisted this simple reform that many analysts call a “no brainer.” If ever there were a time to reform the commissary system, it is now.
Congress, in its FY 2012 Defense Authorization, provided for the creation of a new commission that would examine military compensation and benefits. The fiscal crisis in general and the sequester in particular lend special urgency to the work of this commission. But commissions do not legislate. It will be up to Congress to act on any recommendations that the commission might formulate. It should do so sooner rather than later.
The Pentagon, working with Congress, should also approve a list of new base and facilities closures. While it would be politically easier to close overseas bases, doing so would reinforce the worldwide perception of an increasingly inward-looking America. There are still far too many bases and facilities in the United States, under the protection of local congressional delegations. One set of facilities that is ripe for review and reduction is the national network of defense research laboratories.
Closing defense labs would have to be a selective process. On the one hand, the Defense Department is no match for Silicon Valley in terms of cyber development. Similarly, there are university centers of excellence in niche military spheres: for example, Pennsylvania State University in mine warfare or the Georgia Institute of Technology in materials research. On the other hand, DoD has an unmatched lead in military medical research. Similarly, it is unequalled in research that addresses what are colloquially termed “black programs.” A sequester-like, across-the-board dissolution of the labs would be a serious error. Leaving them all intact would, however, be an equally serious waste of taxpayer funds.
Congress could also do much to enable DoD to cut back on wasteful spending. It could legislate changes to the package of benefits offered to the military. It could legislate changes to the oversight of contractors and the creation of an internal Audit Office (not to be confused with the Office of the Inspector General, which is not suited for such a function). It could close unneeded military facilities. In addition, Congress could repeal two antiquated laws that were better suited to economic conditions that have not prevailed for decades.
The 1931 Davis-Bacon Act requires that wages for defense work be set at prevailing local rates. It was meant to prevent falling wages during the Great Depression, but it has since become a vehicle for labor unions to extract high wages for government work, thereby inflating costs for government projects.
An even more antiquated piece of legislation, the Merchant Marine Act of 1920, better known as the Jones Act, requires that only American flag-carriers can ship goods between American ports, and that only American-built ships with American crews can qualify as American flag-carriers. These restrictions have effectively led to the ruination of the American shipbuilding industry, since foreign ships, often flying under flags of convenience with non-unionized crews have been able to offer shippers cheaper alternatives to American-built and manned cargo vessels. As a result, the shipbuilding industry has become almost wholly dependent on the U.S. Navy, with the result that the Navy has had to pay much higher prices for its ships to keep the industry afloat. Again, Congress must come to grips not only with the fact that the American economy at best bears only a passing resemblance to that of nearly a century ago, but also that it needs to help revive the shipbuilding industry at a time when job creation is paramount, and when the high cost of shipbuilding is contributing to the steep decline in U.S. naval force levels.
Even if DoD and Congress both were to undertake reforms to ease the pressure imposed by the sequester, these reforms will take time to implement. In the meantime, the sequester will eat away at American military capabilities, some of which, such as procurement programs, may be exceedingly difficult to resurrect.
resident Obama has consistently argued that defense must contribute its “fair share” to deficit and debt reduction. By this he has meant that the defense budget should fall by at least as much as all other discretionary programs combined. And indeed, the sequester reduces defense spending more than non-defense spending: Of the $109 billion that needs to be cut each year of the sequester, defense contributes $54.5 billion in cuts while all other discretionary programs account for less than $40 billion.
The Administration’s argument fails on several counts, however. To begin with, defense has already sustained two major reductions, the Gates cuts, which were unique to the Department, and the annual $47 billion reduction over ten years that was mandated in the FY 2011 Budget Control Act. In addition, the “fair share” argument overlooks the real cause of the debt crisis, namely, untrammeled growth in Medicare and Medicaid costs and, to a lesser extent, Social Security. If these three entitlements were factored into the baseline for budget reductions, the so-called “fair share” to be levied on defense would drop from more than half of mandated cuts to about 20 percent. The international security consequences of the difference between those two figures cannot be overstated.
Reasonable people can argue about the nature of defense requirements and how much to spend in light of other needs. Nevertheless, that argument must not be driven primarily by domestic political considerations. Perceptions of threats to American security and interests and, by extension, threats to allies whose security is linked to those interests must take pride of place. Moreover, it is entirely possible to be penny-wise and pound-foolish. Accepting more risk by spending less is not necessarily cost-effective on its own terms. The lesson of steep Depression-era, post-World War II and post-Vietnam drawdowns is that when budget concerns drive strategy, the costs of rebuilding in the face of new threats can exceed the cost of maintaining a relatively constant level of defense spending.
The most vociferous supporters of deep reductions in defense spending even if the sequester is rescinded argue that budget levels should approximate those of the late 1990s—that is, prior to the post 9/11 buildup. They point out that the United States outspends all of its allies; indeed it outspends most of them combined. They also assert that even after the cuts mandated by the Budget Control Act, defense still accounts for about half of all discretionary spending.
Yet the same people who voice these arguments today have been doing so for years, and in some cases for decades. In other words, they have argued for reductions whatever the actual level of defense spending and whatever the character of the threat environment. Their latest critiques therefore have a familiar ring; one wonders what level of spending actually would be acceptable to them.
In any event, the current case for defense spending reductions overlooks several key factors. To begin with, the real cost of defense programs has risen sharply since the beginning of the millennium. Personnel costs have grown because Congress has expanded both the scope of benefits and the personnel eligible for them. The creation and expansion of Tricare for Life is perhaps the best-known example of such unwise and unsustainable congressional largesse.
Weapons systems have also become far more expensive in real terms since the late 1990s. While it is fair to say that poor management has driven up the costs of some programs, such as the Littoral Combat Ship, it is still the case that the increasing complexity of weapons system has been a major factor in program cost increases. The more complex a system, the more difficult it is to engineer the integration of its component elements. Moreover, the desire to increase the survivability of weapons systems, and more importantly, of the personnel who employ them, has also been a major cause of increases in development and production costs. Comparisons with the 1990s are as fanciful as they are irrelevant.
The argument that military spending should be reduced because America spends so much more than any other country to maintain its forces also overlooks the unique nature of American strategy as a security provider for the global commons. Only the United States has a truly forward strategy that is geared to fighting wars as far as possible from its own shores. This strategy requires rotating both weapons systems and personnel in order to maintain deployments overseas. It also calls for a large overseas infrastructure. Needless to say, this full-time overseas presence is a major cost driver that is entirely absent in the case of other nations, with the partial exceptions of Britain and France.
The final argument for significant defense budget reductions, that defense accounts for half of all discretionary spending, overlooks the huge impact on the national debt of non-discretionary spending, especially Medicare and Medicaid. If non-discretionary spending is taken into account, defense amounts to about a fifth, not half, of all annual government spending. And since military personnel accounts are effectively entitlements as well, discretionary defense spending really amounts to no more than 15 percent of all annual spending. Defense is therefore being asked to contribute what is very much an “unfair share” toward deficit reduction.
Moreover, servicing the nation’s nearly $17 trillion debt has become a major factor in the government’s annual budget deficit. Debt service for the first half of FY 2013 amounted to over $180 billion, and this with short-term interest rates at record lows of about 0.25 percent. The average rate between 1961 and 2013 was far higher: more than 6 percent. Should rates begin to rise again, the cost of debt service would more than offset any debt reduction achieved by defense cuts. Indeed, it could offset the elimination of the entire defense budget.
here is no question that the defense budget contributes to the government’s annual budget deficit, which currently is expected to fall just short of $1 trillion by the end of FY 2013. At issue is just how much defense actually contributes to that deficit, and what, as a consequence, might be a reasonable level of defense spending. As I have tried to show, defense contributes much less to the deficit than many claim, and much less than the Obama Administration seems to think. And the consequences of acting on such spurious analysis are far more dire that the Administration seems to appreciate.
In at least one respect, however, the sequester may be a blessing in disguise. It may force the Defense Department finally to confront the many ways in which it continues to waste money. Similarly, it might force Congress, which thus far has failed miserably at resolving the larger deficit crisis, to repeal counterproductive laws and pass others that would augment defense efficiency.
A more efficient Defense Department may not be a less costly Defense Department. Nor might greater efficiency obviate the need for additional reductions, albeit on a smaller scale than that currently being contemplated. To the extent that those cuts are only a minor addition to the major ones already sustained, America’s prospects for maintaining a credible defense posture will increase markedly. Our allies, friends and enemies will then surely take note, and calibrate their actions accordingly, in a way that can only benefit America and a more stable world order.