The Next U.S. President and the Pentagon’s $610 Billion Budget

The next woman or man to occupy the Oval Office will have to make hard choices about how to spend our defense dollars to deal with current and future defense challenges.

First in defense dollars are policy. Not allocating sufficient funds to the Pentagon or allowing it to spend scarce resources on the wrong items will make it more difficult to protect our vital national security interests. On the other hand, spending too much will undermine our ability to fund other national security components, like foreign aid and homeland defense that also contribute to our security, or weaken our economic strength which is the foundation of a strong national security. Second, no matter how much this nation spends on defense, we cannot buy perfect security.   Keeping these two things in mind, the new chief executive must first decide how much to spend. According to the recent budget deal, concluded by President Obama and the Republican controlled Congress, the budget for FY 2017, the year the new president takes office, will be $610 billion, $551 billion in the base budget and another $59 billion for overseas contingency operations (OC) which has routinely been used as a slush fund to pay for non-war related items in the defense budget.

Is this amount adequate? Proponents of increasing the budget will claim that this amount represents a historically small share of our nation’s gross domestic product (GDP) or our overall federal budget. But these claims tell us more about our economy and the state of our finances than the security threats we now face or are likely to face in the future. For example, the defense share of Russia's GDP has gone up since the Russian economy is in the tank because of the dramatic decline in the price of oil and the sanctions the US and our European partners have placed on Russian President Vladimir Putin because of its his aggression in the Ukraine. Similarly even though China's military budget is rising, the defense share of its GDP has gone down because of China's robust economic growth. In fact China provides a smaller share of its GDP to defense than we do. Finally, they will argue that the defense budget has declined by about 20% in real terms since the budget control act (BCA) or sequestration was enacted. While this is true, it ignores the fact that, in real terms, by 2010 the defense budget had reached levels not seen since World War II and that much of the decline is a result of the fact that we no longer have hundreds of thousands of troops deployed to Iraq and Afghanistan. Moreover, this drawdown is less than the drawdown that occurred after Korea, Vietnam, and the Cold War.

A more relevant criteria for deciding on the appropriate size of the defense budget is the US share of the world's military expenditures or comparing the size of our budget to that of our political adversaries. For FY 2017, the US will account for 40% of the world's total military expenditures, and if one adds in the expenditures of our NATO allies and Japan about 80%. Even if one uses purchasing power parity to account for the higher salaries of our troops, the US all alone still accounts for one third of the world's military expenditures.

Even though the amount we spend on defense is more than adequate, the next president will still face challenges in dealing with the distribution of the budget.

Controlling Pay and Benefits for Active and Retired Military Costs of pay and benefits for active duty and retired military personnel are exploding which has the Pentagon paying more and more for a smaller and smaller force. This situation results from the fact that for most of the past decade pay and benefits have grown much faster than the established standards. Confronting this challenge will not be easy given the fact that such a small percentage of the country now serves in the military and the veterans lobby is one of the most powerful in the country. Moreover the military lobby often claims that bringing pay and benefits back to their agreed-upon levels in the Pentagon budget undermines the needs of our physically and mentally wounded veterans. These claims ignore the fact that these brave men and women are taken care of by a separate Veteran’s Administration budget, which is now the second largest discretionary budget. To deal with this challenge, the new president should appoint a secretary of defense who has served in the military and therefore will have the credibility to bring these benefits under control. None of the leading presidential candidates has ever served.

Keeping Navy and Air Force Hawks in Budget Reality Second, the new president must decide whether to modernize all three legs of the nuclear triad and how to pay for it, something that will cost $350 billion over the next decade and $1 trillion over the next 30 years, without reducing necessary funds for modernization of our conventional forces. For example, the Navy claims it cannot for procure new ballistic missile submarines within its current shipbuilding budget and argues that since this is a national need there should be a separate fund called the sea based deterrence fund to purchase the submarines. If the next president supports this, there is no doubt the Air Force will seek a similar fund for its new bombers. But if the Navy and Air Force get these additional funds, where will they come from since the Department of Defense top line is already settled? Moreover, the Navy and the Air Force have tried this gimmick on presidents going back to Eisenhower.

To deal with this, the new president should consider reducing our deployed nuclear weapons from 1550 to no more than 1000, a number more than adequate to deter any potential nuclear adversary.

Manage the DoD Like a Corporation Third, the new president must improve the management of the department. Currently the 85 weapon systems under development by the Pentagon have experienced cost growth of $450 billion and delays for up to a decade, something Sen. John McCain (R-AZ), the current chairman of the Senate armed services committee and a defense hawk has noted is partially responsible for the passage of the budget control act or sequester.

As the new president decides on how to ensure that the Pentagon spends taxpayer money wisely, he or she will obviously focus on what person should become the next secretary of defense. As mentioned above, this certainly is particularly important in bringing pay and benefits under control. However the new chief executive must also ensure that the Department’s number two position, the deputy secretary of defense is filled by the right person. The deputy is the person responsible for running a department because the secretary has to spend much of his or her time on external duties at home and abroad. In looking at when the department has been well-managed two periods, stand out, namely the post-Vietnam and the post-Cold War drawdowns. Not surprisingly the deputies in those periods were titans of industry, that is individuals who had run large complex organizations, David Packard of Hewlett-Packard (NYSE:HPQ), William Clemens from SEDCO, Charles Duncan from Coca-Cola (NYSE:KO) and Don Atwood from General Motors (NYSE:GM)

If the new president brings personnel costs under control, builds only enough nuclear weapons for deterrence, and improves the management of the Pentagon, a $610 billion defense budget, which is 40% higher in real terms than the budget that existed on 9/11, will be more than adequate.