Brookings: Topics - U.S. Defense Budget

Reviving U.S. Foreign Policy: The Case for Putting America’s House in Order

Thu, 30 May 2013 15:30:00 -0400

Event Information

May 30, 2013
3:30 PM - 5:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

A rising China, climate change, terrorism, Iran’s nuclear ambitions, a tumultuous Middle East, and a defiant North Korea all present serious challenges for U.S. foreign policy, but could internal factors actually pose the biggest threat to the United States, its security, and its position as a global leader? In his new book, Foreign Policy Begins at Home: The Case for Putting America's House in Order (Basic Books, 2013), Richard Haass argues that U.S. national security depends on the United States addressing significant internal issues: repairing its crumbling infrastructure, improving education, reforming its immigration policies and reducing its burgeoning debt. Haass, president of the Council on Foreign Relations, contends that these shortcomings directly threaten America's ability to project power and exert influence overseas; to compete in the global marketplace; to generate the resources needed to promote the full range of U.S. interests abroad; and to set a compelling example that can influence the thinking and behavior of other nations.

On May 30, Foreign Policy at Brookings hosted Haass for a discussion on the challenging issues facing the United States at home and their impact on the successful pursuit of U.S. foreign and security policies abroad. Brookings Senior Fellow Robert Kagan joined the discussion. Vice President Martin Indyk, director of Foreign Policy, provided introductory remarks and moderated the conversation.

Sequestration and U.S. Defense Spending: Healing the Wounded Giant

Michael E. O'Hanlon — Mon, 13 May 2013 12:50:00 -0400

Sequestration cuts to the U.S. defense budget have started to affect military contracting and training. Such changes may be fine in the short term, but costly in ways beyond dollar figures in the long term. In his new book Healing the Wounded Giant, Senior Fellow Michael O’Hanlon focuses on the question of how much could be cut from the defense budget if done right. In this video Q&A, O'Hanlon provides examples of two areas where cuts can be made: ground forces and procurement of the F-35 combat jets. He also predicts what Secretary Hagel will propose for the defense budget and how it has the potential to help strike a fiscal deal.

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Sequestration and U.S. Defense Spending: Healing the Wounded Giant

Authors

Michael E. O'Hanlon

How to Cut the Pentagon Budget Better Than Sequestration Does

Michael E. O'Hanlon — Mon, 13 May 2013 15:16:00 -0400

A deeply flawed conventional wisdom is developing that despite warnings from former defense secretary Leon Panetta and others that the sky would fall if sequestration occurred, automatic spending cuts are not so bad after all. By this logic, not only should the cuts in defense as well as domestic “discretionary” accounts continue, but it would also be okay to implement automatic and across-the-board cuts in the next fiscal year, too, starting in October.

Yet the path we are on is far from acceptable.

While some of this year’s roughly $46 billion in defense cuts from sequestration reflect reasonable pruning, many of the reductions are not sustainable. Savings from policies such as dramatically reducing training for most military units this summer are not catastrophic if done once, but they cannot be continued without fundamentally jeopardizing military readiness.

Then there are savings that appear real but are not, such as deferred overhauls of major weaponry and deferred maintenance at bases. We can put off some repairs, but most will have to be done eventually — and may be more expensive if deferred. Then there are savings made on the backs of those with limited ability to make their voices heard: furloughs of civilian government employees top this list. In addition to being highly disruptive to government operations, these furloughs suggest that federal workers are second-class citizens (even as members of Congress can keep their entire paychecks for the year). Graduating students at public policy schools and other worthy individuals are being denied opportunities to work for the federal government due to hiring freezes.

Together, these temporary savings, faux savings and unfair savings represent at least half the $46 billion in cutbacks that the Defense Department is experiencing.

The military budget can be cut beyond the initial reductions from the 2011 Budget Control Act. But continued sequestration or reductions of comparable magnitude such as those resulting from the Simpson-Bowles proposals go too far. Such plans tend to make sweeping claims that, because defense spending remains reasonably high by historic and international standards, it can be cut much further. This reasoning is too vague for a world in which crises continue throughout the broader Middle East, U.S. forces remain engaged in Afghanistan, North Korea continues to nuclearize, and China continues its rise. It is time to get specific about further defense cuts.

Read the full article »

Authors

Michael E. O'Hanlon

Publication: The Washington Post

Image Source: © Romeo Ranoco / Reuters

The Future of the U.S. Nuclear Arsenal

Steven Pifer — Wed, 20 Mar 2013 00:00:00 -0400

Editor's note: In an interview with WKAR on the future of the U.S. nuclear arsenal, Steven Pifer, co-author of The Opportunity, discusses prospects for future international arms negotiations as well as the stability of the U.S. and Russian bombs, submarines and planes. Read an excerpt below.

WKAR: Before we get into the details, can you give us a sense of the scale we’re talking about here? I’m sure the exact number is a guarded secret but about how many nuclear warheads does the U.S. maintain?

Steve Pifer: Well actually it’s not a secret. In 2010 the United States released a number and said that as of September 2009 the total American stockpile was 5,113 weapons.

WKAR: Okay

Pifer: Which is a huge decrease from the Cold War, at the height of the Cold War there were 25,000- 30,000 weapons. But you still have to ask the question; does that number make sense twenty years after the end of the Cold War and the collapse of the Soviet Union?

WKAR: What about the dollar cost of maintaining that arsenal?

Pifer: The dollar cost in terms of maintaining them, on a day to day status, is estimated at say thirty to forty billion dollars a year. So it’s a part of the defense budget…

WKAR: Wow

Pifer: But where the costs get really big is if you look, say five or seven years down the road, where the Navy’s going to have to start building a new ballistic missile submarine to replace the Ohio class submarines which have to be retired in about 15 years and then you’re talking about an estimate of $6 to $7 billion dollars, per boat, not counting the missiles or torpedoes.

Listen to the audio »

Authors

Steven Pifer

Publication: WKAR

Image Source: © Shamil Zhumatov / Reuters

Inaction on the Budget: The American People Are Partly to Blame

William A. Galston — Mon, 25 Feb 2013 16:00:00 -0500

At a time when beating up on “Washington politicians” is so much in vogue, it may be time for the American people to look in the mirror. Two recent surveys from the respected, non-partisan Pew Research Center shine a spotlight on the public attitudes that contribute to political gridlock.

On February 21st, a Pew survey documented widespread public demand for major legislation to address the budget deficit. Fully 70 percent said it was “essential,” compared to 51 percent for immigration legislation, 46 percent for gun violence, and only 34 percent for climate change. Probing deeper, the survey found that 76 percent—which included majorities of Republicans as well as Democrats and Independents – favored a combination of spending cuts and tax increases, versus only 19 percent for spending cuts only and a miniscule 3 percent who wanted only tax increases.

Although the people broadly favor what President Obama calls a “balanced approach,” they don’t treat taxes and spending symmetrically. Of the 76 percent who favor a combination, more than two thirds (54 percent of respondents) favor a package of “mostly” spending cuts, versus only 16 percent for mostly tax increases. In sum, the survey found 73 percent of the people want to solve the deficit problem only or mostly with spending cuts, compared to 19 percent who favor only or mostly taxes.

Although would seem to be a pretty clear message to elected officials, a survey Pew released the very next day showed why politicians are tied up in knots. For 19 categories of federal programs, researchers asked whether each should be increased, decreased, or kept the same. In none of these categories—not one—was there a majority in favor of cuts. While people mostly wanted spending to stay the same, in three categories—health care, education, and veterans’ benefits—people preferred increases to stability. Even among Republicans, in whose ranks budget-cutting fervor runs high, cuts draw majority support in only two categories—foreign aid and unemployment insurance.

It now appears that rather than raising taxes, Congress will go along with major cuts to the defense budget. Considering that even conservative Republicans—long the bastion of support for the military—are willing to go along, you might imagine that there’s a huge groundswell in favor of lower defense spending. You’d be wrong: only 24 percent do, versus 41 percent who want to keep spending steady and 32 percent who want to increase it; this after 12 years of war and elevated military expenditures.

As for entitlement cuts, forget about it. Only 15 percent favored reduced spending on Medicare. For Social Security, it was 10 percent.

So there you have it: the American people want the federal government to reduce spending without touching actual programs. Is it any wonder that long-term budget cuts have stalled and that even short-term fiscal issues tie Congress up in knots?

But before we rush to say that it’s all the people’s fault, we should reflect on how they have come to harbor such internally inconsistent sentiments. A large part of it stems from what their elected officials have been telling them—and even more, not telling them--for a very long time. How many of the people’s representatives in either the legislative or executive branches have really leveled with their constituents about what it would take to wrestle the federal budget back on a sustainable trajectory for the long term?

It’s hard to avoid the conclusion that most of today’s politicians regard the people with a mixture of fear and contempt: they can’t stand the truth, and they’ll punish any elected official who utters it.

When politicians come to believe this, or act as though they do, effective democratic self-government becomes impossible, and temporizing and pandering fill the vacuum the absence of serious governance creates.

Authors

William A. Galston

Image Source: © Joshua Roberts / Reuters

Preparing for Sequestration: What to Expect

William A. Galston and Michael E. O'Hanlon — Mon, 25 Feb 2013 15:30:00 -0500

The sequestration budget axe is poised to fall on March 1. If it does, the initial installment of more than one trillion dollars in cuts will go into effect, leading to layoffs, furloughs, program cuts, fewer dollars allocated for defense spending, education and more. With no eleventh-hour rescue plan on the horizon, government agencies and the public are girding themselves for getting by on less. Senior Fellows Michael O’Hanlon and William Galston take a closer look.

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15 Ways to Rethink the Federal Budget

Fri, 22 Feb 2013 12:05:00 -0500

Publication: The Hamilton Project

Making Defense Affordable

Cindy Williams — Fri, 22 Feb 2013 08:00:00 -0500

In this policy proposal — part of The Hamilton Project's 15 Ways to Rethink the Federal Budget — Cindy Williams proposes measures for sustaining a strong military while reducing future annual defense expenditures, mainly through addressing growing internal costs in the defense budget and reshaping military forces in a way that reduces future budgets while preserving strong and ready military capabilities.

IMPACT

Deficit Reduction (10-year): $540 billion to $770 billion

Broader Benefits: Addresses growing internal costs in the defense budget to preserve military capabilities; reshapes military forces in a way that reduces future budgets while keeping a strong and ready military.

ABSTRACT

The U.S. government faces a tough fiscal future. Absent significant changes to current taxation and spending policies, debt held by the public will mount within two decades to levels never before experienced by this country. The consequences for the American economy and for the nation’s place in the world could be severe.

Unless overturned, the Budget Control Act (BCA) of 2011 will cut future non-war defense budgets by about 10 percent from previously planned levels. The cuts mandated by the BCA fall far short of bringing anticipated future deficits down to sustainable levels, however. As a result, non-war defense budgets seem likely to shrink even farther than the levels set under the BCA—even if the law is overturned during the coming year or two. A real decline of 16 percent or more relative to previously planned levels would be consistent with both the magnitude of the nation’s structural fiscal problems and historical reductions to U.S. defense spending as wars end.

Efforts to reduce defense spending will be complicated by the fact that costs in some parts of the defense budget are growing significantly faster than inflation. This is particularly true in the areas of health care, pay, operation and maintenance, and equipment acquisition. If left unaddressed, that cost growth will eat into the funds available for military forces. This paper suggests a range of alternatives for curbing cost growth in those areas.

The paper also identifies two options for reshaping U.S. military forces in a way that would reduce future budgets while keeping a strong and ready military. It explores the capabilities of the forces under those options and the missions for which they would be suited.

Following the downsizing envisioned in either of the two proposed options, the U.S. military would still greatly outspend every other military in the world by a sizeable margin. The armed forces would be smaller than today’s, but if the reductions are handled sensibly the forces will remain by far the best equipped, best trained, and best maintained in the world.

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Authors

Cindy Williams

Publication: The Hamilton Project

National Defense in a Time of Change

Adm. Gary Roughead (USN Ret.) and Kori Schake — Fri, 22 Feb 2013 00:00:00 -0500

In this policy proposal — part of The Hamilton Project's 15 Ways to Rethink the Federal Budget — Gary Roughead and Kori Schake propose restructuring the force to improve the military’s ability to respond to modern challenges, making military procurement of assets more efficient and competitive, and creating benefits packages more in line with troops’ preferences.

IMPACT

Deficit Reduction (10-year): $500 billion

Broader Benefits: Improves the military's ability to respond to modern challenges, particularly in Asia and the Middle East; makes military procurement of assets more efficient and competitive; designs benefit packages more in line with troops' preferences.

ABSTRACT

The current international order provides an opportunity for U.S. policymakers to put the defense budget in order, and the long- term federal budget outlook makes seizing this opportunity essential. Defense spending has come under scrutiny during budget negotiations; most recently, the Budget Control Act of 2011 (BCA) calls for reductions of $500 billion in defense spending over the next ten years. Although defense can and should contribute to spending reductions, the BCA’s across-the-board cuts would significantly impair the U.S. military’s ability to execute its duties. Instead, responsible reductions in defense spending should be spread more practically across a ten-year period and be designed to strategically focus on the threats we are likely to face and to address internal pressures in the defense budget. Certain internal cost pressures in the defense budget make reductions in spending especially difficult, but unless these areas of cost growth are addressed, they will crowd out spending in other areas and begin to remove military capacity and capability. This paper lays out a strategy to address these challenges in three parts: (1) design a force better aligned to face future challenges, (2) improve the efficiency and efficacy of the acquisition system, and (3) control rising personnel costs. Together, these reforms set the stage for a sustainable defense budget—one that preserves our capability both to face challenges in the near future and to rebuild as new challenges arise.

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Authors

Adm. Gary Roughead (USN Ret.)
Kori Schake

Publication: The Hamilton Project

15 Ideas for Smart Deficit Reduction

Michael Greenstone and Adam Looney, The Hamilton Project — Wed, 20 Feb 2013 14:36:00 -0500

Few policy debates have been as contentious as the current tug-of-war over the federal budget deficit. Despite widespread agreement that the budget is on an unsustainable path, there is also widespread disagreement about what should be done, and, to complicate matters, this budgetary uncertainty comes at a time when policymakers are still trying to get Americans back to work in the wake of the Great Recession.

In the coming months, policymakers will make important decisions on how to reduce the budget deficit. These decisions pose significant political and economic challenges, but also create a rare window of opportunity for policymakers to decide what kinds of programs and investments our country values, and what sort of society we will create for future generations. Once consensus has been reached about the broad focus of future investments, the devil will be in the details of implementation. And without a doubt, a sound budget strategy will require ideas rooted in evidence, not ideology, if we are to achieve these long-term goals.

To this end, The Hamilton Project asked leading experts from a variety of backgrounds—the policy world, academia, and the private sector, and from both sides of the political aisle—to develop policy proposals that could form a partial menu of options to achieve responsible deficit reduction. These experts include Jonathan Gruber, an MIT professor who was instrumental in shaping health-care reform bills in Massachusetts and nationally; Jeff Liebman, a Harvard professor who previously served as acting Deputy Director at the Office of Management and Budget; Gary Roughead, a retired four-star admiral and former Chief of Naval Operations; Tyler Duvall, former Assistant Secretary of Transportation Policy at the Department of Transportation; Adele Morris of Brookings, who leads the institution’s climate and energy economics initiative; and many others.

The mandate given to the authors was to describe pragmatic, evidenced-based proposals that would both reduce the deficit and also bring broader economic benefits. The resulting fifteen proposals take on a wide-ranging set of topics, including immigration, transportation, health care, defense spending, and tax expenditures, and include options to reduce mandatory and discretionary expenditures, raise revenues, and improve government efficiency.

The opening table of The Hamilton Project’s forthcoming budget book presents the fifteen proposals and their potential impacts on the economy and the deficit over a ten-year period. Viewed individually, the proposals offer specific reforms and evidence-based policy ideas to achieve budgetary savings and broader economic benefits. Taken together, they offer a menu of policies—a mix of tax reforms, changes to major spending programs, and new revenue raisers—that could contribute meaningful deficit reduction and help the country confront its most pressing economic challenges. To preview the budget table, click here.

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Michael Greenstone and Adam Looney: These Authors Have Drafted Policies That Help the Budget and Provide Economic Benefits

The Hamilton Project budget report will be released on February 26th as part of a two-part forum:

Part I: Budgeting for a Modern Military — February 22nd
The first event will feature two proposals for reducing defense spending while preserving national security. The authors of the papers—Retired Admiral and former Chief of Naval Operations Gary Roughead, and former CBO Assistant Director Cindy Williams—will be joined to discuss their ideas by high-level experts including former Deputy Secretary of Defense and former CIA Director John Deutch, former Undersecretary for Defense Michele Flournoy, and former Senate Armed Services Chairman Sam Nunn.

Part II: Addressing Entitlements, Taxation, and Revenues — February 26th
The second event in our series will shift the focus to entitlements, tax reform, and new sources of revenue. Three former CBO directors—Alice Rivlin, Senior Fellow at Brookings, Robert B. Reischauer of The Urban Institute, and Donald Marron of the Tax Policy Center—will set the stage for the day’s discussions around 13 new proposals for reducing the deficit. A diverse group of authors will join the forum for roundtables focusing on an enduring social safety net, innovative approaches to tax reform, and new sources of revenue and efficiency.

For updates on the event, follow us @hamiltonproj and join the conversation using #RethinktheBudget.

Michael Greenstone is the director of The Hamilton Project and Adam Looney is its policy director. For more about the Project, visit www.hamiltonproject.org.

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Michael Greenstone and Adam Looney: These Authors Have Drafted Policies That Help the Budget and Provide Economic Benefits

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Michael Greenstone and Adam Looney, The Hamilton Project

Image Source: © Larry Downing / Reuters

The Army of the Future: A Discussion with General Raymond T. Odierno, Chief of Staff of the U.S. Army

Fri, 15 Feb 2013 11:00:00 -0500

Event Information

February 15, 2013
11:00 AM - 12:00 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

This event was broadcast live on CSPAN.org.

As the Pentagon adapts to budget cuts, new strategic priorities, and continued fighting in Afghanistan, the U.S. Army must still look ahead in order to respond to future challenges. In wrestling with the transforming international security environment as well as new budget realities, the institution and its leadership must be ready to ask the right questions about what lies past the horizon and then develop responses that reflect its innovative and adaptive character.

On February 15, the 21st Century Defense Initiative at Brookings hosted General Raymond T. Odierno, Chief of Staff of the U.S. Army, for an important discussion on the future of America’s Army.

Following his address, General Odierno took questions from the audience. Senior Fellow Michael O’Hanlon, director of research for Foreign Policy at Brookings, moderated the discussion.

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The Army of the Future: A Discussion with General Raymond T. Odierno, Chief of Staff of the U.S. Army

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From SEAL Team Six To Retiring Without Health Insurance

Michael E. O'Hanlon and Lt. Col. John Barnett (USMC) — Thu, 14 Feb 2013 00:00:00 -0500

Esquire magazine's report this week that a retired 16-year veteran of the United States military—a Navy SEAL who played a key role in the May 2011 raid that killed Osama bin Laden—now struggles without health care has become a mini cause célèbre. The story is an opportune time to review how the U.S. takes care of the men and women who do so much to protect it.

America's military compensation system is at once generous and stingy. It needs improvement, but the right answer at a time of national fiscal duress cannot simply be to increase benefits wherever there seems an argument for doing so. Reforms and efficiencies are needed too.

Whatever the specifics of the SEAL's case, a person who leaves the military after 16 years doesn't fare very well in postservice compensation systems. Pensions kick in after 20 years of service, typically at 50% of previous basic pay, as does access to the military's "Tricare for life" health-care program that provides excellent benefits to veterans and their families at very modest costs.

Anyone retiring before 20 years of military service isn't eligible for these benefits, even in part, and virtually everyone in the military is well aware of this fact—which is why very few people voluntarily leave the service after 15-19 years.

Read the full article »

Authors

Michael E. O'Hanlon
Lt. Col. John Barnett (USMC)

Publication: Wall Street Journal

Image Source: © KYODO Kyodo / Reuters

Obama’s Aims to Reduce Nuclear Threat

Michael E. O'Hanlon and Steven Pifer — Tue, 12 Feb 2013 00:00:00 -0500

In his State of the Union address on Tuesday, President Barack Obama will reportedly reiterate his interest in reducing the threat of nuclear weapons, though unlikely to announce specifics. The administration is interested in seeking an agreement with Russia, building on the New Strategic Arms Reduction Treaty (START) of 2010 and cutting U.S. strategic nuclear forces by another third in the expectation that Moscow will do the same with its nuclear arsenal.

This would leave each country with roughly 1,000 deployed long-range warheads, plus several thousand more in reserve and in tactical arsenals.

It would be an appropriately modest step toward serious pursuit of Obama’s (and President Ronald Reagan’s) goal of a nuclear-free world. With 1,000 warheads, the U.S. nuclear arsenal would remain more than capable of targeting any reasonable set of military sites abroad. Washington and Moscow would also avoid tempting any medium-size nuclear powers, most notably China, with its 250 or so warheads, to pursue nuclear superpower ranks.

It is sound policy. Dramatic enough to make a major difference in Obama’s foreign policy legacy yet measured enough to sustain U.S. deterrence for Washington and its allies abroad. Still, it will work best if several additional steps are included:

Modest U.S. unilateral cuts are a reasonable way to jump-start the process if Moscow is not immediately amenable to reciprocative measures. But they should be modest and reversible ‑ until we see how Russia reacts. This is not about fear of a U.S.-Russian nuclear exchange, but rather about avoiding the possibility that Moscow would become more assertive if it somehow felt empowered by a new position atop the nuclear hierarchy.

Tactical and surplus warheads should be constrained. As a first step, data exchanges and some informal monitoring provisions should be explored. U.S.-Russian arms-control treaties have not previously limited warheads in these inventories. Since they are not normally affixed to big missiles or bombers, they are harder to track. But that is why they must be limited in some way. We will need to improve monitoring methods for these warheads if other countries are to be brought into the nuclear arms-control process in future rounds, since most other nations’ arsenals are dominated by these shorter-range weapons.

Missile defenses need to be part of the process. Since the United States withdrew from the Anti-Ballistic Missile Treaty during the George W. Bush administration, there have been no ceilings on any type of missile defenses. There is little point here in trying to put Humpty Dumpty back together. Not only do congressional Republicans strongly oppose any limits on U.S. missile defenses but the technologies are evolving too fast (and are still too immature) for restraints to make much sense. Especially since some missile defense capability is a reasonable desire for those worried about North Korean and Iranian threats. But greater transparency, some degree of actual collaboration between the United States and Russia and, depending on the evolution of not just the technology but also the threat, some greater flexibility regarding U.S. plans to put advanced missile defenses into Europe in the future makes sense. The flexibility should not go so far as to weaken Washi! ngton’s bonds with allies and should not prevent the United States and its allies from protecting themselves. This point needs to be made plainly to Moscow.

Third parties should be asked to promise restraint, too. The other U.N. Security Council Permanent Five nuclear powers ‑ Britain, France and China ‑ as well as Israel, India and Pakistan should promise not to exceed current arsenal sizes, or at least not by much. This need not be a deal breaker if they refuse. But it would be a useful complement that would help ensure that no new nuclear competition is triggered by U.S. and Russian cutbacks, and would help pave the way for future multilateral treaties. To help persuade the other nuclear powers to agree, all countries could be asked to promise not to develop or augment existing nuclear weapons inventories. In other words, language could be proposed that would allow non-nuclear states to make the same pledge, and that would not require countries such as Israel to acknowledge officially that they have nuclear weapons. (Since right now they might not.)

Other arms-control measures could be considered. Top of the list is ratification of the 1990s-era Comprehensive Test Ban Treaty, which the United States and China, among the world’s declared nuclear powers, have not yet ratified. (The Senate voted it down in 1999.) Another ratification debate is not prudent if it leads to a formal Senate defeat. But this is an opportune moment to remind Americans that our current arsenal is holding up extremely well without testing, and to make the case for formalizing our testing restraint. The last U.S. test was in 1992; no state other than North Korea has tested in the last dozen years.

Obama has rightly seized this nuclear arms-control opportunity. It may or may not make him the president who started the real march toward a nuclear-free planet. Indeed, that may not even be a realistic or desirable goal at this stage.

But his plan should help future presidents and Congresses evaluate the wisdom of such a possible step. Meanwhile, it saves a little money and, more important, helps keeps America and her allies safe.

Authors

Publication: Reuters

Image Source: © STR New / Reuters

A Moderate Plan for Additional Defense Budget Cuts

Michael E. O'Hanlon — Fri, 08 Feb 2013 00:00:00 -0500

In this Brookings Foreign Policy paper, Michael O'Hanlon suggests how the Pentagon might cut certain weapons, forces, and other capabilities that would cumulatively save up to $200 billion over ten years.

These savings would be greater than those assumed by the Pentagon in 2012. But they would be much less than those implied by possible sequestration or the Simpson-Bowles deficit reduction commission. O'Hanlon believes his moderate plan for defense cuts, while itself difficult to implement, is feasible within the basic national security strategy of the United States today—a strategy he supports. However, deeper cuts would require more fundamental changes to that strategy, and greater risks to national security. For these reasons, O'Hanlon argues against sequestration, or any other plan implying similar cuts to the ten-year defense plan. The ideas in this paper will be further developed in a forthcoming Brookings book by O'Hanlon later this spring.

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Authors

Michael E. O'Hanlon

Not All Cuts Are Created Equal: Why Smart Deficit Reduction Matters

Michael Greenstone and Adam Looney, The Hamilton Project — Fri, 01 Feb 2013 12:54:00 -0500

According to the Bureau of Labor Statistics, the economy added 157,000 jobs during the month of January and an average of 200,000 jobs in the prior three months. These new estimates of job gains now reflect the annual “benchmark” revision to the payroll survey, which showed that the level of employment in December last year was about 650,000 jobs higher than previously reported. As a result, estimates of total job creation in 2012 were increased to 181,000 jobs per month, or a cumulative 2.2 million added jobs over the year. The unemployment rate, at 7.9 percent, has remained at roughly the same level since September of last year.

Thus far in 2013, the major economic focus has been on the budget—the “fiscal cliff” in particular—and the effect of the federal deficit on broader economic activity. Indeed, over the past two years, policymakers have made much progress on reducing the budget deficit. As currently legislated under the American Taxpayer Relief Act of 2012 (ATRA), the deficit is projected to fall to a more manageable 2.6 percent of GDP in 2018. However, the deficit is projected to rise thereafter, highlighting that, over the longer term, there is still more work to be done in matching revenues and spending.

In this month’s employment analysis, The Hamilton Project explores how the design of budget cuts could impact economic growth and living standards in the coming years and beyond. We also continue to explore the “jobs gap,” or the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels.

The Current Path Toward Deficit Reduction

In the past two years policymakers have enacted $3.5 trillion of deficit reduction set to take place over the next 10 years, with $1.1 trillion of these cuts coming from the sequestration scheduled for March 1. Should all these policies go into effect, the ratio of spending cuts to revenue increases would be more than 4-to-1, and the forecasted deficit in 2018 would be about 2.6 percent of GDP, down from 10.1 percent in 2009 and 7.0 percent in 2012. Indeed, according to the Center on Budget and Policy Priorities (CBPP), if most of these policies take effect, policymakers would need to find as little as $257 billion to stabilize the national debt at a sustainable level by the end of the decade ^[1]. On paper, at least, that suggests policymakers are within reach of resolving the near-term deficit problem.

The problem, however, is that currently scheduled cuts are hugely unpopular with analysts, the public, and most lawmakers. The automatic spending cuts mandated in the Budget Control Act (BCA) of 2011, are scheduled to begin in March 2013 and end in 2021, evenly divided over the nine-year period. The cuts are split between defense spending (with spending on wars exempt) and non-defense discretionary spending, which does not include entitlements like Social Security, Medicare, and Medicaid. This type of indiscriminate cutting has profound implications for our nation’s economic well being.

For example, the figure below shows the effects of the recent budget changes, including the sequester, on non-defense discretionary spending. Under scheduled cuts this category of spending would fall to its lowest level in recent history. Why is this a concern?

In today’s increasingly competitive global economy, many Americans have seen their wages stagnate or even decline over the last several decades, and non-defense discretionary spending includes the public investments that, for generations, have helped improve the lives of Americans and provide economic opportunities of the working and middle classes. Reductions in these spending categories mean less funding for the National Science Foundation, less research into new sources of energy, less training and workforce development, and less spending on education through initiatives such as Pell Grants. This funding provides support to our ailing infrastructure, enables research and development to improve health and foster innovation, and increases access to higher education at a time when we have fallen from second to fifteenth in international college completion rates.

The sequester also threatens to impose deep cuts to defense spending. The new caps would cut non-war defense spending from previously planned levels by about 6 percent this year and about 10 percent from 2014 to 2021. These cuts are particularly challenging because of internal pressures within the military budget in areas where costs are projected to rise faster than inflation. Between 2000 and 2010, the Department of Defense expanded its force by 4 percent, but costs increased by more than 40 percent. Much of this cost growth is driven not by increases in capacity or new investments, but by rising costs in areas such as military personnel and operation and maintenance. Left unaddressed, these growing costs will crowd out spending for military readiness and other vital capabilities.

But there are also short-term concerns about the economic effects of the sequester. The U.S. economy is still weak. As we discuss below, the nation faces a massive jobs gap, and private forecasters suggest that the sequester could subtract 0.7 percentage points from economic growth in 2013. In this respect, the sequester runs counter to the textbook economics solution to this situation, which is to enact sustainable budget consolidation today, but to delay its effect until the economy is on sounder footing.

The January Jobs Gap

As of January, our nation faces a “jobs gap” of 10.3 million jobs (even after incorporating the effects of this month’s positive revisions to employment growth). The chart below shows how the jobs gap has evolved since the start of the Great Recession in December 2007, and how long it will take to close under different assumptions of job growth. The solid line shows the net number of jobs lost since the Great Recession began. The broken lines track how long it will take to close the jobs gap under alternative assumptions about the rate of job creation going forward.

If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until April 2020 to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate of the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by November 2016. Again, these figures do not reflect the anticipated update to the payroll data due in February, which may reduce the actual jobs gap. You can also try out our interactive jobs gap calculator by clicking here and view the jobs gap chart for each state here.

Conclusion

The spending cuts and revenue increases made in the last two years put the nation on a path toward fiscal sustainability, but the real challenge lies in ensuring that deficit reduction is done in a way that preserves the ability of the government to make much-needed public investments and to tackle our long-run economic challenges. Achieving real fiscal balance will require creative thinking about which areas of the budget can be made more efficient and about which areas should be preserved.

To that end, The Hamilton Project asked experts from a variety of backgrounds—the policy world, academia, and the private sector—and from both sides of the political aisle, to provide innovative, pragmatic proposals for lowering the deficit that take into account impacts to the economy at large. The resulting 15 proposals range across budget groups, and include options to reduce mandatory and discretionary spending, to raise revenues, and to improve economic efficiency. The proposals will be featured this month in a two-part budget series.

The first event, “Budgeting for a Modern Military,” will be held on February 22nd and feature two proposals for reducing defense spending while preserving national security. The authors of the papers—Retired Admiral and former Chief of Naval Operations Gary Roughead, and former CBO Assistant Director Cindy Williams—will be joined to discuss their ideas by high-level experts including former Deputy Secretary of Defense and former CIA Director John Deutch, former Undersecretary for Defense Michele Flournoy, and former Senate Armed Services Chairman Sam Nunn.

The second forum, “Addressing Entitlements, Taxation, and Revenues,” will be held on February 26th and feature a diverse group of authors who will present their proposals, which touch on topics as wide-ranging as immigration, transportation, healthcare, and mortgage interest. These proposals provide options for bringing the budget into balance that, in contrast to the sequester, do not compromise the future well-being of Americans by sharply cutting public investments.

For updates on the event, follow us @hamiltonproj and join the conversation using #RethinktheBudget.

^[1] This estimate assumes that the $1.1 trillion sequestration takes effect and the costs of $400 billion of so-called “tax extenders” are paid for, but that scheduled cuts to Medicare physicians (totaling roughly $250 billion) will not take effect and would not be paid for.

Authors

Michael Greenstone and Adam Looney, The Hamilton Project

Image Source: Medioimages/Photodisc

Budgetary Misnomers and the Cost of Defense

Paul R. Pillar — Thu, 31 Jan 2013 00:00:00 -0500

Editor's note: This article was originally published by The National Interest.

As budgetary battles proceed with competing rhetorical salvos about what parts of government spending are unreasonably large, or are most out of control, or are the “real” reason for burgeoning deficits (actually, every part of the budgetary equation, on both the expenditure and the revenue sides, is just as real as every other part), one welcomes the occasional breath of fresh semantic air on the subject. Veronique de Rugy of the Mercatus Center at George Mason University, using data compiled by Winslow Wheeler of the Project on Government Oversight, observes that the figures usually adduced to present spending on “defense” or “national security” understate by a long shot actual federal spending that is appropriately put under such labels. The figure most often cited is the “base” budget of the Department of Defense, which was $535 billion for FY2012. But military and defense expenditures go well beyond that, including such things as the development of nuclear weapons, which is done in the Department of Energy, or training of foreign military forces, which come under the international affairs section of the federal budget. Add in all those other things and the total is more like $930 billion rather than $535 billion. And that's just current expenditures, not taking into account follow-on effects such as additional interest to be paid on the national debt.

Probably the most egregious bit of military-related budgetary legerdemain has been the practice of keeping the operational costs of the wars in Iraq and Afghanistan separate from the main Pentagon budget, as if those costs should not count as much because they are, well, sort of temporary. And so the base budget figure continues to get cited as “defense spending” even though it excludes the main, and costliest, activities in recent years of the U.S. military. This practice makes as much sense as if I were to calculate my health care costs and to exclude stays in the hospital, instead only including recurring expenditures such as dental check-ups.

There is, admittedly, a sense in which the Iraq War should not be counted as “defense” spending. The war was not an act of defense; it was offense. But that, of course, is not the reason for the practice (begun by the administration that launched the Iraq War) of separating costs of the war from the main defense budget. The reason had much more to do with wanting to understate the actual amount the United States spends on its military.

Joseph Stiglitz and Linda Bilmes have shown how the true total cost of an endeavor such as the Iraq War goes far beyond what shows up in the federal budget and includes various secondary economic effects. Even just sticking to the federal budget, there are very large costs that do not show up in any one year's current budget. A big part of the follow-on cost of recent wars is the long-term care of military veterans, especially grievously wounded ones. Such costs are proportionately greater than for previous wars. Thanks to body armor and a splendid military medical system, many who would have died in earlier conflicts instead survive—but they are still maimed.

Misleading budgetary labeling is by no means confined to military spending. Grouping some government programs under the label “entitlements”—which are programs or obligations where expenditures do not reflect specific Congressional appropriations but instead are determined automatically by such things as how many people happen to qualify for a statutorily defined benefit—can be justly criticized on several grounds. One is that there is wide variation among such obligations or programs, and no reason that a single standard with a single label should apply to all of them. Another is that “entitlement” is a loaded term that implies an agreed moral obligation even when there might not be one. The term also implies—especially when contrasted with other parts of federal spending, which bear the label “discretionary”—that Congress's hands are tied in changing this even if they really aren't. George Will has said that all federal spending is discretionary other than interest on the national debt. In one legalistic sense he may be right, although if one accepts that position then the extortion-facilitating device known as the debt ceiling—which treats as an option non-payment of interest on debt already incurred—looks all the more foolish and unwarranted.

Applying a common moral sense of “entitlement” to federal expenditures does not produce a classification that corresponds to the budgetary categories of entitlements and discretionary spending. Wouldn't we all agree, for example, that wounded veterans are entitled to government-paid long-term care? And yet medical programs of the Veterans Administration come under the “discretionary” label. (And that care constitutes a big chunk of the military-related expenditure that usually does not get included as “defense spending.”)

There also is wide variation in the amount of discretion entailed in different government activities that are on the “discretionary” side of the ledger, even without getting into the questions of political feasibility that inhibit changes to many of the “entitlement” programs. Much that is labeled “discretionary” is necessary for what has come to be widely expected as a function of government. Elimination of some of these activities would immediately be seen as a crisis—e.g., the air traffic control system operated by the Federal Aviation Administration (which gets much of its funding from a trust fund based on taxing tickets for air travel but also draws money from the general treasury). And turning back to military matters, some of these civilian activities are far less discretionary than was that very expensive war of choice in Iraq.

Also back on military matters, we should note that “entitlement” is not the only loaded term when discussing budgetary categories. “Defense” and “national security” are loaded as well. They are labels that presume a priority and importance that things not bearing those labels are presumed not to have. But the labels are affixed to some activities, including some very expensive activities, that are more offensive than defensive and whose contribution to the security of the nation is at best a matter of conjecture or debate.

Authors

Paul R. Pillar

Publication: The National Interest

Forget Iran—Chuck Hagel's Toughest Fight Will Be the Pentagon's Budget

William A. Galston — Wed, 30 Jan 2013 00:00:00 -0500

In the run-up to his confirmation hearing this week, Chuck Hagel has had to endure a coordinated campaign attacking his views on the simmering conflict between Iran and Israel. There's no doubt that if Hagel is confirmed as Defense Secretary, Tehran's nuclear program will eventually be one of his central challenges. But there's another task that he will have to address first, one that's perhaps even more important for the United States in the long-term: scaling the Pentagon's budget to fiscal reality.

It’s inevitable that the next head of the Department of Defense will preside over massive cuts in the military budget. The spending targets already required by law are too large to be met through reductions around the margins of our current defense posture, and the additional cuts looming at the end of February promise to make the job far harder. The United States military will be forced not only to reduce its existing capabilities, as it has after every extended period of war, but also to choose among some of its longest-standing commitments. Even if the Senators who will be questioning Hagel, who has described the defense budget as “bloated,” don't press him on this issue, one would hope that he has started to reckon with it.

Consider current projected spending. Excluding spending for ongoing wars (mainly in Afghanistan), defense spending will total about $562 billion in the current fiscal year. If that figure rose at the rate of inflation over the next decade, spending would reach $714 billion. But it won’t, thanks to the Budget Control Act of August 2011 that narrowly averted a default on the national debt: the BCA established caps below the rate of inflation for all categories of discretionary spending, foreign and domestic. As a result, defense spending is limited to $661 billion in 2022—$53 billion less than would be needed just to keep up with inflation.

There’s more. The BCA also called for an additional reduction in the deficit of $1.2 trillion between 2013 and 2022. After the “super-committee” failed to agree on how to do that, the law’s backup mechanism, “sequestration”—essentially, automatic cuts—came into play. This provision of the law would divide the $1.2 trillion evenly between defense and nondefense programs, an additional $492 billion of spending reductions in each of these sectors over the next ten years. (Reduced interest payments on the debt would make up the remaining $200 billion of the $1.2 trillion total.)

The fiscal cliff agreement pushed back the date on which sequestration goes into effect from December 31, 2012 until the end of February, and there’s a chance that sequestration could be defused (or at least softened) in the coming budget negotiation. Still, the bet on both sides of the aisle is that sequestration will become operative at the beginning of March. On top of the budget caps, it would reduce defense spending in 2022 to $605 billion—more than $100 billion below what would be needed to maintain the purchasing power of the military budget at 2013 levels. Just this year, military leaders would have to cut $60 billion from pre-BCA levels, more than 10 percent of projected expenditures. And they would have to cram those cuts into the remaining six months of the fiscal year. That’s the planning horizon that Chuck Hagel would face.

Meeting these targets would be even tougher than it looks. As Brookings defense expert Michael O’Hanlon observes in his recent book, The Wounded Giant, most military costs—including pay, health care, and environmental restoration—rise at a rate of about 2 percent more than inflation. There are plenty of economizing measures that are long overdue: the Pentagon could easily close more military bases and switch to more efficient personnel replacement strategies for ships at sea. Still, trimming the fat won’t get close to doing the job.

At the least, it's likely that this we would be looking at immediate layoffs, including officers and enlisted personnel who have made a long-term commitment in the expectation of a reciprocal commitment from their country, and abrupt cancellation of numerous contracts in various stages of completion. And it would become impossible for the Pentagon to carry out all the missions currently assigned to it. If Hagel gets the nod, he will have to recommend major strategic choices in the face of the Pentagon's budget constraints.

So what should he do? A case can be made that safeguarding the Persian Gulf, keeping the peace in East Asia, and guaranteeing the freedom of the seas ought to be America's top priorities. Notably, they all involve naval and air power, far more than land-based forces. In theory, we could reduce our capacity to conduct full-scale land operations, relying more on special forces and technology to keep our enemies on the defensive. This course comes with real costs and grave risks, however—in the Middle East and on the Korean peninsula, among other hot spots—and would have to be the result of the most searching review of grand strategy since the late 1940s. We have not even begun to think this through.

Needless to say, urgent fiscal pressure is hardly a formula for sound defense policy-making. And I've written before about how I’m equally skeptical about huge cuts in the domestic portion of discretionary spending. So it’s worth considering what has brought us to this place. If Republicans refuse to put more revenues on the table while Democrats resist all but the most modest reforms in Medicare, we have only two choices—large deficits and a rising debt burden, or spending reductions that would gut public investment, defense, and the social safety net. As Bill Clinton would say, it’s arithmetic.

Right now, the political momentum is carrying us toward sequestration. It may well be that after we experience its effects for a year or so—on poor people as well as the nation’s defense—the politics of the budget would shift toward a more balanced approach. I'm sure that Chuck Hagel is hoping it happens as quickly as possible—before we damage ourselves in ways that would be hard to reverse.

Authors

William A. Galston

Publication: The New Republic

Hagel Defense Nomination Will Pass

Michael E. O'Hanlon — Wed, 30 Jan 2013 00:00:00 -0500

Chuck Hagel's confirmation hearings as secretary of Defense starting today promise to be the most riveting of any of President Obama's second-term nominations. The former GOP senator from Nebraska and Vietnam War veteran will surely come under fire from some committee members over his provocative views on a variety of areas.

Whether a contrarian-type thinker like Hagel can be highly effective at the Pentagon is partly a matter of timing. For a new administration, needing a steady and cautious hand on the tiller, it might not be best.

But now that President Obama is in his second term, he knows his own mind on many matters, and John Kerry, as secretary of State, represents a careful and pragmatic voice on foreign policy, too. So Hagel's willingness to challenge others' assumptions might not be so undesirable. Indeed, on some issues, it could be productive.

Much of the controversy over Hagel has concerned his views on key countries such as Israel, Iran and Iraq. Here's what he has said and why it should not derail his confirmation:

On Israel, Hagel has criticized aspects of Israeli policy, including its reticence in engaging with Palestinians. In 2006, he said, "Our relationship with Israel is a special and historic one. But it need not and cannot be at the expense of our Arab and Muslim relationships." Many others in the foreign policy community have expressed similar concerns. It is highly doubtful that Hagel will express any hesitancy about helping Israel defend itself.

On Iraq, Hagel called the 2007 U.S. troop surge "the most dangerous foreign policy blunder ... since Vietnam." But even some of us who came to defend that policy strongly had initial doubt. In any event, U.S. troops are now home from Iraq.

On Iran, the nominee has expressed doubts over possible U.S. airstrikes even as Tehran continues its march toward a nuclear weapons capability. But the president has declared repeatedly his firm view that Iran must not be allowed a nuclear weapon.

In this regard, Hagel's skepticism about a hard line could be a welcome antidote to a strong consensus leaning toward the use of force in coming months, a decision that would be fraught with danger.

On Afghanistan, it is important that Hagel show an openmindedness about our policy. He has been a skeptic, but that is OK as long as Hagel understands where we are in the campaign plan, and recommends any major changes with utmost care.

Much progress has been made, and Afghans have been counting on a gradual and careful U.S. transition out of the combat mission. Without delicate handling, the Afghan army and police could collapse, and next year's Afghan presidential elections could deteriorate into a sectarian and tribal competition. That would risk future stability and increase the likelihood of an al-Qaeda return.

The U.S. defense budget is the biggest issue of all for Hagel. If confirmed, he will step into a situation where, failing new congressional action, the Pentagon will have to eliminate almost 10% in its current year budget under the automatic spending cuts due March 1.

Hagel has said that the Defense Department "in many ways has been bloated. ... I think the Pentagon needs to be pared down." Yet one round of defense cuts has already been agreed upon. The cuts are somewhere between $350 billion and $487 billion over the next 10 years, as part of the deal worked out between Obama and Congress back in 2011.

But on March 1, if no further action happens, another $500 billion will be taken out of its 10-year plan. These cuts are in addition to the more dramatic reductions in war costs underway. Some have noted that annual defense spending would still slightly exceed the Cold War average even after such reductions. But the automatic cuts are not wise, and I hope Hagel will say so.

To be sure, additional Pentagon budget cuts of $100 billion to $200 billion over the next decade are feasible as part of a broader deficit deal. But I see no way to make $500 billion more in cuts without undermining our defense strategy.

Hagel can bring some fresh thinking to the budget process, and if he shows flexibility with some of his past views during the hearings, there's no reason he won't win confirmation.

Authors

Michael E. O'Hanlon

Publication: USA Today