Recent budget and tax proposals on Capitol Hill threaten to pit defense hawks against deficit hawks, which could result in defense spending that leaves the military unable to meet all its requirements.
A virtual freeze in defense spending has been in place over the past four years, and it appears unlikely that a big increase will get through for fiscal 2018.
It started in 2011, when Congress faced a moment of reckoning. Instead of protecting the national interest, lawmakers retreated, imposing nearly ironclad spending limitations called “sequester” caps on annual appropriations through the Budget Control Act.
By 2013, when the Bipartisan Policy Center published its report “From Merely Stupid to Dangerous,” detailing the sequester’s dire consequences for the economy and national security, a tipping point had already been reached. Despite small increases in the sequester caps, defense spending has remained essentially flat over the past four years.
Congress just completed work on a National Defense Authorization Act for fiscal 2018. This legislation reveals the disparity between what policymakers had outlined before sequestration took effect and current reality. It recommends total defense spending at $701 billion, including $65 billion for Overseas Contingency Operations, funds for the Energy Department’s nuclear weapons programs and a small amount for other agencies.
As for the base defense budget, the NDAA recommends appropriations of $626.4 billion — an amount $77 billion larger than the sequester cap limitation. This represents the House and Senate Armed Services committees’ attempts to reach the fiscal 2018 budget levels proposed by former Defense Secretary Robert Gates six years ago, in the last recommendation made before the Budget Control Act went into effect. That much of an increase seems highly improbable, despite pleas from military leaders for increases and predictability in funding.
Several factors weigh against large defense increases. Federal deficits are projected to rise under current law, and the pending tax cut proposal will likely lead to even higher deficits in the future. Defense hawks and deficit hawks could be gearing up for a fight.
What’s more, Democrats will probably ask for an increase in nondefense appropriations similar to that which defense receives, as they have in the past. This potentially limits any significant defense hike.
A little-noticed report from the Defense Department revealed that the United States has spent more than $1.5 trillion since 2001 on conflicts in Iraq and Afghanistan. Meanwhile, the military faces deferred maintenance and modernization, over-stressed troops and families, reduced overall readiness and retention problems. The primary culprits are sequester limitations and an unprecedented operational tempo for the past 16 years.
As appropriators begin to discuss an end-of-year deal, those factors may be enough to derail the talks.
Increased defense spending requests often run into a seemingly strong counterargument: The U.S. spends more on defense than the next seven or eight nations combined, in nominal (unadjusted) dollars. This is true, but only in the most facile of ways. This argument distorts reality.
Using Purchasing Power Parity exchange rates, instead of nominal dollars, one can see the flaw behind this widely cited statistic. PPP exchanges are simply the rate at which the currency of one country would need to be converted into that of another country to buy the same amount of goods and services.
Using PPP exchange rates, U.S. defense spending has increased about 4.7 percent annually between 2000 and 2016. Meanwhile, China’s defense spending has increased by more than 11 percent annually. In fact, American defense spending declined between 2012 and 2014.
China spent the equivalent of $411.8 billion on defense in 2016, compared to $611.2 billion by the United States. Additionally, reverse engineering of weapons systems acquired from other nations and Russian weapons transfers in the 1990s accelerated Chinese weapons improvements. These large cost-savers are not reflected in BPC’s estimates.
In 2016, Russia spent more on defense as a percentage of GDP than the United States, according to the World Bank.
These figures explain the frequent public statements by senior U.S. military leaders that if defense spending stays at the sequester levels, the U.S. military will be unable to meet its basic defense missions.
The outcome of the fiscal 2018 appropriations discussions will set the table for the moment of reckoning soon to follow — not just for defense, but for the entire budget.
Steve Bell is a senior adviser in economic policy at the Bipartisan Policy Center and a former staff director of the Senate Budget Committee.
The Bipartisan Policy Center is a D.C.-based think tank that actively promotes bipartisanship. BPC works to address the key challenges facing the nation through policy solutions that are the product of informed deliberations by former elected and appointed officials, business and labor leaders, and academics and advocates from both ends of the political spectrum. BPC is currently focused on health, energy, national security, the economy, financial regulatory reform, housing, immigration, infrastructure, and governance. Follow BPC on Twitter or Facebook.