Academic journal article The Journal of Government Financial Management

Whither the Defense Budget? Countervailing Pressures and Process Challenges

Academic journal article The Journal of Government Financial Management

Whither the Defense Budget? Countervailing Pressures and Process Challenges

Article excerpt

...MR. PRESIDENT, YOU HAVE INHERITED AN ARRAY OFFISCAL CONCERNS. THE BUDGET DEFICIT FOR YOUR FIRST YEAR IN OFFICE IS PROJECTED TO BE AT LEAST A TRILLION DOLLARS, THE DEBT EXCEEDS $10 TRILLION AND ACCRUED LIABILITIES TOTAL MORE THAN $50 TRILLION. THE LAST CONGRESS FAILED TO PASS APPROPRIATIONS ACTS FOR MOST DEPARTMENTS OFTHE FEDERAL GOVERNMENT, YET ADDED HUNDREDS OFBILLIONS IN NEW LIABILITIES TO BAIL OUT THE FINANCIAL MARKETS AND SUPPORT AILING INDUSTRIES. MEANWHILE, THE NATION IS WAGING A WAR ON TERRORISM THAT SO FAR HAS COST NEARLY $1 TRILLION, AND ITS TOTAL LONG-TERM COSTS ARE REASONABLY LIKELY TO EXCEED $2 TRILLION MORE, YET NO PROVISION HAS BEEN MADE TO PAY FOR IT. IN FACT, TAXES WERE CUT LEAVING NO ALTERNATIVE BUT TO BORROW, AND FOREIGN GOVERNMENTS HAVE LENT THE U.S. NEARLY $2 TRILLION SINCE SEPT. 11, 2001. MOREOVER, ENTITLEMENT SPENDING IS GROWING FASTER THAN OUR ABILITY TO MEET THOSE OBLIGATIONS...

You expressed a goal to invest more to stimulate the economy and you have said you want to reduce unnecessary federal spending and ease the tax burden for the middle class. Indeed, this is a fiscal policy challenge.

Part of establishing a sound fiscal policy is to set clear priorities for what the federal government will and will not do, in what proportions, and determine how best to pay for them. Addressing the nation's fiscal imbalance must necessarily look at outlays and one of the largest categories of federal spending is national defense. Providing for the common defense is among the most important functions of the federal government, yet defense spending is often seen by oncoming administrations as a place where savings can be found and cuts can be made. This article addresses two critical issues related to budgeting for national security: the difficulty of reducing such spending in the current environment and the need to improve the budgeting processes.

The Difficulty of Reducing Defense Spending

In our nation there is seldom a consensus on the right amount to spend for defense. The amount can be defined relative to the size of the federal budget and of the economy, and by almost any historical relative measure one should expect defense spending to decline over the next few years. Until the increases in funding for the global war on terror, defense budgets had been declining as a percent of GDP and as a share of the entire federal budget. This is reflected in Figure 1.4 The trend in inflation-adjusted defense spending also suggests a downturn since the nation is at the top of a consistently repeating cycle. Projecting historical trends in defense spending is not a perfect predictor but these trends do suggest downward pressure on the defense budget.

In addition, consider other factors that affect the level of defense spending. Some factors external to the Department of Defense (DoD) put downward pressure on the defense budget. The budget deficit pressur- izes the entire budget, and, some believe, encourages limitations on overall spending. Defense budgets tend to move in inverse relationship to deficits as shown in Figure 2,5 suggesting pressure to cut spending. Moreover, entitlement programs like Social Security, Medicare and debt interest place increasing stress on the discretionary portion of the bud- get. Such mandatory spending grew from 23 percent to 48 percent of federal outlays over the past 40 years while DoD outlays fell from 43 percent to 20 percent over the same period.6 Pressures from non-defense discretionary programs - economic, energy, education and environmental policy areas featured prominently in the presidential campaign-suggest further constraints on defense spending. Defense budgets also move in response to public opinion7 and recent polls suggest public pressure to decrease DoD's share of the budget pie.8

Total defense spending normally declines when major military engagements wind down. As operations in Iraq begin to draw down, there will be an expectation of a peace dividend, but do not expect to cut the defense budget easily, Mr. …

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