Friday, October 18, 2013

Reversing a Weak Defense

Peter Huessy

At present the military is not being allocated enough money to carry out the tasks it is being asked to do by the realities of our security. "While the military will run to the sound of the guns, we may not be ready to go." — General Martin Dempsey, Chairman of the U.S. Joint Chiefs of Staff, to the Senate Armed Services Committee, July 18, 2013
The U.S. national defense is in jeopardy. So long as important military capabilities are cut to meet arbitrary budget reduction targets, and so long as there is not some long-term budget-and-strategy agreement, the U.S. Department of Defense -- and therefore the nation's security -- are positioned to take a beating.

Although defense spending is only 15% of the total federal budget, it is the largest portion of discretionary spending, at 60%; it includes the eleven cabinet level agencies, such as the Department of State, the Justice Department, and the Environmental Protection Agency, as well as the Department of Defense.
To justify defense cuts, much of the commentary on defense strategy starts with the correct premise that most Americans are weary of war and therefore such cuts are consistent with the tenor of the times. While it may be true that Americans are weary of foreign entanglements, a return to American isolationism means that we would neglect our genuine security requirements.
Many observers and analysts, assuming that cumulative cuts in defense spending are not going to be altered, have designed a force structure to fit the budget -- thus what we have now are budget cuts masquerading as strategy assessments.
Sequestration -- automatic defense budget cuts -- are cutting $50 billion a year out of $350 billion in our defense spending this year, and every year, for the next eight years, as part of the 2011 debt-reduction agreement.
As military personnel costs (as well as the overseas war contingency funding) are exempt from such cuts, the remaining accounts -- of research, development and acquisition of weapons systems -- are being hammered. Moreover, these cuts came on top of overall defense cuts of $300 billion in 2009; $175 billion cut in 2010, and $487 billion cut in 2011.
Added together, defense spending from 2009-2022 has, and will be, reduced by more than $1.5 trillion -- not including a projected additional near-trillion dollar reduction in 10-year costs in overseas contingency operations in Iraq, Somalia, Afghanistan and Yemen.
To avoid further sequestration, the U.S. needs a long-term budget agreement -- including entitlement reform with spending restraints -- otherwise, the private sector of the U.S. economy will be hard pressed -- under the debt burden it is rapidly incurring, now nearing $17 trillion officially, and estimates of $100 trillion (that would include entitlements) unofficially -- to have sufficient capital for investment in new businesses to employ the 24 million Americans unemployed or working only part-time. Only through such economic growth will tax revenue be able to grow sufficiently to provide what is needed for adequate defense.
Entitlement spending -- Medicare, Medicaid, Social Security and welfare -- continues automatically even in the absence of Congressional action. If Congress does nothing, entitlement spending just rolls along.
Without an agreement to reform and cut entitlements -- which constitute nearly two-thirds of all government spending -- it is only discretionary spending each year that gets cut and the only place in which Congress can approve new spending each year
Given this dire situation, it is no wonder that Joint Chiefs General Chairman Martin E. Dempsey correctly told the Senate Armed Services Committee "the longer sequestration in its current form persists," our future military will be characterized as one with "[u]nready forces, misaligned global posture, inability to keep pace with emerging threats, reduced security cooperation, and failure to maintain a high quality All Volunteer Force".
He further testified that while "the military will run to the sound of the guns, we may not be ready to go." And he warned that projected budgets will not sustain even scaled-down American security requirements, let alone a solid "Pacific pivot" -- moving U.S. forces to that area of the world, as the administration has called for.
Currently U.S. military commanders cannot implement a sound strategy for the next 5-10 years without a known defense budget. Given the uncertainty over sequestration cuts and the absence of an agreed upon long term budget plan, the unknowns dwarf the knowns.
If Generals and Admirals are given a budget over the long term, at least they then will know what they have to work with and can adopt the best strategy to get the maximum result.
Such a task becomes enormously difficult, however, when the budgets provided -- by both Congress and the administration -- are not firmly related to the required cost of a sound security strategy. At present the military is not being allotted enough money to carry out the tasks demanded by the realities of our security.
The main reason we do not have a sound long term defense budget, as the new Congressional Budget Office report of October 2, 2013, explained, is Washington's failure to get the U.S. fiscal house in order; that task would require looking at all government spending -- especially entitlements -- which is politically difficult to do.
The U.S. goal should be to keep the government running and raise the debt limit -- and, as part of any deal, remove defense spending as the central target of deficit reduction efforts, as endorsed by Representative Buck McKeon, Chairman of the House Armed Services Committee and by senior administration officials.
The U.S. should adopt pro-growth tax and regulatory reforms to boost employment -- and thereby Federal revenues -- while also reforming and restraining future entitlement spending. A new debate is needed on economic freedom -- which starts with addressing the 24 million Americans under-employed or currently out of work.
The new CBO report explains that government health care expenditures are chiefly to blame. These include excess cost growth at 40%, an aging population at 26%, and the expansion of benefits under the Affordable Care Act [ACA] at 26%. It warns that without entitlement reforms, by the end of this decade, annual deficits over $1 trillion will be the norm. Welfare outlays account for the remainder of the projected unsustainable spending.
The Affordable Care Act was put forward in part to make through major changes in health insurance what entitlement reform advocates had long championed: reducing health care costs. However, the competition needed to drive innovation in health care and thus lower costs is not fully available under the ACA. Provisions such as allowing the sale of insurance across state lines; having small business pools to purchase insurance; expanding health care savings accounts; tort reform; and making health insurance largely portable all are reforms worth examining.
We cannot afford a "do little" strategy. Those who want a sound long-term debt deal -- one that includes tax, welfare, entitlement and regulatory reform -- have tried to use the leverage of the government not being fully funded or its debt ceiling not being extended to move toward such a goal.
The ACA was targeted as representative of new government entitlement spending. However, the fiscal health of the U.S., while intimately tied to costs of new government-funded health care such as the ACA, also involves programs of long-standing such as Medicare and Medicaid.
Overall, as CBO reports, the debt outlook is staggering -- but the problem is now, not out into the future.
Over the next 75 years, the U.S. will incur $100 trillion in additional unfunded liabilities, the October 2, 2013 CBO "Budget Outlook" report projects. In ten years, the Federal debt will reach $25 trillion compared to $17 trillion today. Interest on the debt alone is projected to reach $1 trillion a year by then, as opposed to the $225 billion now.
If the U.S. economy performs well, with full employment, GDP growth averaging over 3% a year, and health care costs increasing at only 5-7% a year (rather than at their historical average, often in excess of 10%), we may be able to solve some of these problems, but only if entitlement spending is reduced. Currently, U.S. GDP and job growth are both half what a robust recovery would be producing.
Average or median family income is down $5000 since the bottom of the recession in June 2009, and more part-time than full-time jobs were created this year between January and June, though the trend toward full-time employment has recovered in the past two months.
The challenge before us is clear: grow the economy, or else see continued recession, economic hardship, and seriously inadequate national security. What is keeping most Americans, including Washington, from understanding this?
According to former Congressmen Bill Archer and Chris Cox, "…the full extent of the problem has [long] remained hidden from policy makers and the public because of less than transparent government financial statements….the far greater fiscal challenge of the U.S. government's unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one."
They continue: "The U.S. Treasury 'balance sheet' does…not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations."
They conclude: "The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion [2012 estimate], or 550% of GDP."
Things have gotten so bad that no budget agreement has passed the U.S. Senate since 2009.
Instead, spending is buried what are called "Omnibus spending" bills (everything is put under one gigantic bill). Few read the bills, which usually number in the thousands of pages -- with special spending deals hidden in the text -- and everybody pretends the debt is being reduced, when in fact it is being increased.
Greta van Susteren identified how the budget process itself is part of the problem. She noted that each appropriations bill could be passed during the fiscal year when "ready to go" rather than having all bills waiting until the very end of the fiscal year.
There are two key reasons why appropriations bills have not recently been passed "when ready." The first is the framework of the 1974 Budget Control Act itself. The second is the White House and Congress often like the gridlock and game of budget chicken that results from this as opportunities to demonize the other party.
Thus each party can complain of efforts to secure through the threat of a government shutdown, what it could not otherwise get in the normal legislative process, as did administration aide Dan Pfieffer. Each party tends to portray the other as "obstructionists," thereby avoiding serious discussion of the issues raised by groups such as the Bowles-Simpson Commission, which in 2011 pushed for long term debt relief, spending and tax reforms.
The options were ultimately rejected by both the administration and Congress. Since then, however, these issues have gotten some new impetus to be considered. For example, both House and Senate tax writing committees have put forward serious tax simplification proposals, including lower tax rates and fewer special tax breaks, something both parties have endorsed, at least rhetorically.
Entitlement reform is apparently once again seen as necessary for future spending restraint, as the White House has put forward a plan for $20 billion annual savings, from changing the manner by which the cost of living adjustment [COLA] to government spending is calculated. The House Budget Committee has adopted that idea and added a number of others.

The American dream is seen as fading for too many because government is too big, too onerous, and too burdensome.
Can this fading dream be recovered? The answer may lie ironically with the adoption of a new budget framework both Speaker John Boehner and Budget Committee chairman Paul Ryan have mentioned -- and that the administration has cautiously hinted it might embrace -- but as something that might be negotiated after a short term debt and budget extension is adopted. There may, nevertheless, be common ground here.
If, for instance, 20 million more people were able to find jobs, tax revenues would increase and welfare payments would decrease -- helping immeasurably to increase revenue not as flowing from a growing economic tide, from tax reform that "lifts all boats" as President Kennedy said in 1963.
Part of any framework agreement could also involve getting rid of the 1974 Budget Control Act. Let each appropriations bill come forward when ready. Judge each on its merits. Vote it through or vote it down. This system would give an incentive to pass critical appropriations bills early in the fiscal year. Later in the fiscal year, there would be greater pressure to cut back on each appropriations bill, to reduce the annual deficit. That system would also enable Congress to set priorities, and examine each entitlement program as opposed to just keeping all of them on automatic pilot.
It is true that too many in Washington have no interest in examining entitlements, let alone actually bending what is known as the future entitlement "cost curve". Many proponents of such programs believe the programs are sustainable. But as the former head of OMB, Jack Lew, now Treasury Secretary said to the President, according to Bob Woodward in his book The Price of Politics, these programs are "beyond unsustainable."

We now have both a broken budget process and a weak defense. We have deficits soon to surge and entitlement and welfare spending that is accelerating.
We need to restore the welfare reforms of the 1990s and begin to restore the U.S. fiscal balance sheet. Nothing is more important to the nation's security than changes such as these. They alone could get America moving again and take an important step in restoring the American dream.

That goal is worthy of discussion -- and worthy of approval.

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