A Troubling Outlook for Future Defense Spending

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In the final days of planning for the 2020 defense budget, the White House dropped a bomb on the Pentagon: a 33 billion dollar cut. This move captured the attention of defense observers, but once the Pentagon puts that trouble behind it, 2021 promises yet more trouble ahead. Trends both inside and outside of the defense spending debate point to a backlash against rising deficits on the horizon. And if even more significant defense cuts accompany the next round of deficit reduction, as they have in the recent past, Congress risks devastating the US military just as it rebuilds and retools for competition against other great powers.

The Pentagon is currently funded under a full-year defense appropriations act, thanks to topline spending levels set in the Bipartisan Budget Act of 2018. This is the third in a series of 2-year “fixes” to the 2011 Budget Control Act’s artificially low discretionary spending levels. Congress passed the first “fix” in 2013, and the 2018 deal represents the largest defense budget increase provided by Congress so far. These deals have spared the military from some of the worst damage, but Congress has only just begun to allow the rebuilding of military capacity, rather than plugging holes and filling gaps.

At the end of the current fiscal year in September, absent Congressional action, spending will revert to levels set a decade ago – slashing tens of billions of dollars just as the rebuild gets underway. If past patterns hold, after what many expect will be a short-term continuing resolution to start the fiscal year, Congress will eventually come to an agreement on budget numbers for FY20-21 that are not much higher than the current levels, but also not as low as those prescribed by the Budget Control Act.

No matter what the outcome is of next year’s (probable) deal, the Budget Control Act itself expires in the fall of 2021 - the first year of a new presidential term. While it’s impossible to forecast the outcome of the 2020 presidential election, some things are already clear. Most importantly, an impending return to deficit politics in Congress looks set to clash with the planned acquisition of key defense platforms and systems; a collision which could crater US defense capabilities just as the services are beginning to rebuild.

First, US deficit and debt numbers ($984 billion in the current fiscal year) will begin ticking back up above $1 trillion annually starting around 2021 and are projected to rise unsustainably from there. Why does this matter? Congress operates on a 10-year “budget window,” meaning that cost estimates and effects on the deficit for a given bill are projected from current law out over a decade. As the current deficit picture deteriorates significantly within that 10-year window, the effects of a ballooning deficit become “real” for Congress, by restricting the political space that Members have to propose increased spending. Given that, and given the high priority that fiscal hawks have attached to the accomplishments of the Budget Control Act in keeping a (partial) lid on discretionary spending this past decade, it’s impossible to imagine many conservatives letting it expire without fighting hard for a successor to address the rising deficit.

Second, as AEI’s Mackenzie Eaglen and others have pointed out, the Pentagon faces a procurement “bow wave” in the middle years of the 2020s, driving up costs for defense at the same time as Congress may look to cut the overall discretionary budget in reaction to rising deficits. Many of the big-ticket programs across the force -- the B-21 strategic bomber, the Columbia class submarine program, and the nuclear missile enterprise, plus a larger Air Force and a 355-ship Navy, will demand larger shares of the defense budget pie in this timeframe. Looking at personnel and research and development portions of the defense budget (which make up more than one-third of the total), decisions of the past two years also look to “ripen” around 2021. This means that costs will also materialize in different portions of the defense budget, outside of what is spent on weapons procurement, that are not currently projected but which are evident in the assumptions of current decisions.

What it all means: after 2021, there is both motive and opportunity for a political reaction to rising deficits at a massively inopportune time for the Department of Defense. The motive is renewed interest in deficit reduction, spurred by the very real threat of rising deficits. The opportunity is the expiration of the Budget Control Act in the fall of 2021. The last time these factors came together, in 2011, massive cuts to defense were the result. That time around, tax rates and entitlements were protected, but what did the Defense Department get? Budget cuts, and the sequester. We saw again in late October that the White House does not plan to keep up the pace of investment necessary to rebuild the military. Absent a big change in the United States’ overall fiscal picture, or in the Pentagon’s plans to modernize for great power competition, defense observers should watch out for trouble coming down the tracks.

Luke Strange is the Director of Government Relations for Foreign and Defense Policy at the American Enterprise Institute

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