Military Spending and the Budget Deal
The budget deal announced last night offers two sets of potential cuts in military spending.
The first set of potential cuts, created by the budget caps, target “security” spending. That includes the Pentagon, State, foreign aid, the Department of Homeland Security and Veterans (the discretionary portion of Veterans spending, to be precise). The deal caps “security” spending at $684 billion for this fiscal year and $686 for the next. That requires little pain; the 2012 security cap is only $5 billion below what we’ll spend on those categories in fiscal 2011. The White House claims that the caps will generate $350 billion in savings from base defense spending for ten years. They get there, dubiously, by projecting security spending at the capped level across the decade, even after the caps expire, and counting as savings the difference between that spending trajectory and what CBO now projects. They are also assuming that all the savings go to defense, even though Republicans will try to make the other security categories absorb the pain.
The second set of potential cuts, which occur automatically if the Joint Committee fails to reach its spending cut goals, target defense spending directly. This could add $500 billion in defense cuts over ten years, the White House says.
Assuming that is true, the maximum amount of defense cuts possible here is $850 billion. That is a cut of roughly 15 percent compared to planned spending based on the president’s February 2011 budget submission — not including the wars. It is roughly on par with the cuts proposed by the Bowles-Simpson Commission. The total savings are much lower, roughly half, if you compare the cuts to what we actually spend now, rather than the increases we were planning on in past planning documents.
And remember, that $850 billion is a maximum; it may not materialize. It will be lower, if, as hawks hope, the cuts fall on the non-defense elements of the security category. It will be lower if the Joint Committee finds other accounts to cut, avoiding the triggers.
Still, that possible amount is enough to make hawks apoplectic. We are sure to hear more complaints about “gutting or “hollowing out” the force. But let’s keep some facts about military spending in mind:
The Pentagon’s budget has more than doubled over the past decade, and current projections call for the Pentagon to receive more than $6 trillion from U.S. taxpayers through 2021. If its budget got cut by 15 percent, that would return us to roughly 2007 levels. That hardly seems like “gutting“. After such cuts, we would still account for more than 40 percent of global military spending, and our margin of military superiority over any combination of rivals would remain unrivaled.
The focus should now shift to strategy. The White House says the Pentagon’s ongoing roles and missions review will guide the first round of security cuts. The aim is to eliminate military capabilities that are unnecessary or provided by multiple services. We should go deeper, looking to what missions, allies, and possible wars, we can jettison. The recommendations should guide not only the first set of cuts, but also the second. That means making recommendations for the Joint Committee on additional defense cuts and preparing for automatic cuts should they occur. There is nothing preventing those cuts from being achieved by retiring force structure required by needless missions—such as defending rich allies that can defend themselves.
We should also keep in mind that this deal hardly solves our deficit problem and does not exhaust the possible savings we should seek. Deeper military cuts are possible and could even enhance security given the right strategy.
The Debt Ceiling and the Balanced Budget Amendment
The Washington Post editorializes:
A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies.
A fair point. Statesmen should have the ability to “address national security and economic emergencies.” But the same day’s paper included this graphic on the growth of the national debt:
Does this look like the record of policymakers making sensible decisions, running surpluses in good year and deficits when they have to “address national security and economic emergencies”? Of course not. Once Keynesianism gave policymakers permission to run deficits, they spent with abandon year after year. And that’s why it makes sense to impose rules on them, even rules that leave less flexibility than would be ideal if you had ideal statesmen. Indeed, the debt ceiling itself should be that kind of rule, one that limits the amount of debt policymakers can run up. But it has obviously failed.
We’ve become so used to these stunning, incomprehensible, unfathomable levels of deficits and debt — and to the once-rare concept of trillions of dollars — that we forget how new all this debt is. In 1980, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s sailing past $14 trillion.
Historian John Steele Gordon points out how unnecessary our situation is:
There have always been two reasons for adding to the national debt. One is to fight wars. The second is to counteract recessions. But while the national debt in 1982 was 35% of GDP, after a quarter century of nearly uninterrupted economic growth and the end of the Cold War the debt-to-GDP ratio has more than doubled.
It is hard to escape the idea that this happened only because Democrats and Republicans alike never said no to any significant interest group. Despite a genuine economic emergency, the stimulus bill is more about dispensing goodies to Democratic interest groups than stimulating the economy. Even Sen. Charles Schumer (D., N.Y.) — no deficit hawk when his party is in the majority — called it “porky.”
Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They could find some of them here in this report by Chris Edwards.
In the Kentucky Resolutions, Thomas Jefferson wrote, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Just so. When it becomes clear that Congress as a body cannot be trusted with the management of the public fisc, then bind them down with the chains of the Constitution, even — or especially — chains that deny them the flexibility they have heretofore abused.
Here We Go Again: ObamaCare’s Preventive-Care Subsidies Aren’t ‘Free’
In press release, a new video, and an elusive new report, the Obama administration is boasting about the “free” preventive services that ObamaCare provides to Medicare enrollees.
Here we go again.
First, these preventive-care subsidies are not “free.” They are costing taxpayers dearly by adding to America’s $14 trillion national debt. There is no such thing as a free lunch. And there is nothing “free” about ObamaCare.
Second, ObamaCare supporters have claimed that more preventive care would reduce health care spending, but research shows that it will not.
Third, I hope someone is keeping track of all the taxpayer dollars this administration has wasted trying to convince the American people that they’re wrong to dislike ObamaCare.
Finally, if the $250 checks that ObamaCare sent to millions of Medicare enrollees didn’t make this law popular among seniors, I doubt these indirect subsidies will.
Debt Ceiling: Political Games
Back in January I noted that some analysts believe that the statutory debt ceiling should be eliminated. They view the potential for political brinksmanship as creating an unnecessary risk that financial markets will get rattled if there’s a chance the government won’t make good on its debt obligations in a timely manner. I argued that “forcing policymakers to spar publicly over fiscal policy is healthy, especially at a time when analysts generally agree that the country is headed toward an economic catastrophe if Washington’s mounting debt isn’t brought under control.”
I maintain that view four months later, but an article in Politico illustrates the absurd political shenanigans that accompany debt ceiling deliberations.
Sen. Bob Corker (R-TN) is building bipartisan support for a plan that would cap federal spending at a declining percentage of GDP over ten years. Spending as a percentage of GDP would eventually be reduced to 20.6 percent, which is equal to the average from 1970 to 2008. No tax increases.
Corker has been touring his state pitching the plan as part of a deal to raise the debt ceiling. Democratic Senators Claire McCaskill (D-MO) and Joe Manchin (D-WV) have endorsed it, as has Sen. Joe Lieberman (I-CT) who caucuses with the Democrats. Good news, right? Not according to Republican apparatchiks.
From the article:
“Corker’s heart may be in the right place on this legislatively, but it would help if he was more focused on winning back a Senate Republican majority, than hurting the feelings of vulnerable Democrats who recognize the political cover this affords them,” said one senior GOP aide. “McCaskill, Manchin and others can vote for it, and campaign on it, knowing full well that Harry Reid and Chuck Schumer have enough votes to kill it.”
On Tuesday, Corker got into a squabble with the National Republican Senatorial Committee, which ridiculed Manchin for backing the plan by saying it had “zero chance” of passing because it was opposed by Reid. An angry Corker believed the NRSC was squashing the plan’s growing momentum, and had a series of phone calls with NRSC officials expressing his frustration. A spokesman for the NRSC later said that the political committee shouldn’t have “underestimated Sen. Corker’s legislative skills and certainly hope he is successful in this effort.”
Sad as it is, that’s the way it works in Washington, folks. Hey, nevermind that Corker is at the very least planting on Democratic soil the idea that a debt ceiling deal should be focused on reducing spending and not tax hikes. Nope, what’s really important is making sure that Democrats do the wrong thing in order to bolster Mitch McConnell’s Senate Majority Leader prospects. After all, spending and debt didn’t go through the roof when Republicans controlled the House, Senate, and White House, right?
Pardon my sarcasm and obvious contempt, but this is the sort of nonsense that I repeatedly experienced during my days as a Senate staffer. Americans tend to get all hot and bothered over this or that politician, but much of what “gets done” in Washington is actually carried out by party operatives, sycophantic staffers, and lobbyists. All of this leads to a refrain I increasingly end media appearances with: Why do we give these people so much control over our lives?
Robert Kagan for the Defense
The calls for cutting the federal budget continue to build in Congress as the new GOP members try to make good on their promise to rein in the deficit. And, right on time, the latest issue of the Weekly Standard features an article by Robert Kagan critiquing the chorus of calls for cuts to military spending.
I think Kagan’s critique is reasonably fair, certainly more so than others of the recent past. But his basic premise, that national security spending is unrelated to the national debt, simply is not true. At the The Skeptics, I address this:
It is of course true that entitlements and mandatory spending pose the greatest threat to the nation’s fiscal health, but $700+ billion [in defense spending] isn’t chump change. The question of what we should spend on the military ought to take into account the trade-offs, an argument that Dwight Eisenhower advanced in his farewell address just over 50 years ago, and that Charles Zakaib and I highlighted last week. (See also James Ledbetter’s discussion on this point.)
…
Actually, it is a question of fairness, but not the one that [Kagan] proposed. Because security is a core function of government (I think one of the only core functions of government), it would be a mistake to treat military spending as synonymous with spending on, say, farm subsidies. But Kagan’s writings presume that other countries’ governments do not — and should not — see their responsibilities in the same way. Kagan contends that American taxpayers should be responsible for the security of people living in Europe or East Asia or the Middle East. Or anywhere in the world, really… It simply isn’t fair to ask Americans to pay for something that other people should pay for themselves. For reference, the average American—every man, woman and child—spends two and a half times more on national security than the French or the British, five times more than citizens living in other NATO countries, and seven and a half times as much as the average Japanese.
Justin Logan is in the process of authoring a lengthier response for publication, but in the mean time click here to read the full post at The National Interest.
Bush Deception Points
Former President George W. Bush’s book Decision Points is apparently selling quite well. The book includes a defense of the president’s fiscal record, and a table on page 447 compares Bush to prior presidents on spending and debt (you can see the table on Amazon’s search inside feature).
One problem with the table is that Bush claims credit for the low spending and debt of President Clinton’s last year, fiscal 2001. The first budget Bush crafted was for fiscal 2002. Here are the data reported by Bush, and data recalculated to better reflect the budgets that each president had some control over. Figures are averages over the fiscal year periods, measured as a share of GDP:
Decision Points Comparison: Clinton (1993-2000) 19.8%, Bush (2001-2008) 19.6%.
More Accurate Comparison: Clinton (1994-2001) 19.4%, Bush (2002-2009) 20.4%.
The book makes Bush look better on spending, but a more accurate comparison shows Clinton to have a better record.
It’s true that Bush was not responsible for some of fiscal 2009 spending, and if we take that year out Bush would have average spending of 19.8%. But consider the direction of spending under the two presidents–spending fell under Clinton from 21.4% to 18.2%, but it increased under Bush from 18.2% to 20.7% by fiscal 2008 (and even higher in fiscal 2009). (Spending data are here).
The table in Decision Points also shows Bush looking better than Clinton on public debt as a share of GDP, averaged over each president’s tenure. But the debt data has the same time period problem as the spending data. More importantly, Clinton delivered surpluses his last four years in office, which handed Bush a budget with very low debt and low interest costs. The low interest costs helped mask the spending-increase policies of Bush for a number of years. But Bush’s profligacy eventually became clear to analysts and the public alike, and this autobiography cannot undo his record as the biggest spender since LBJ.
Final note: yes, I understand that Congress plays a large role in federal budgeting, but so do presidents. Presidents propose annual budgets, they twist arms and use the bully pulpit to increase or cut programs, they support legislation to expand or contract entitlement programs, and they sign or veto appropriation and authorization bills.
The President’s Fiscal Commission: It’s a Start
Today POLITICO Arena asks
Will implementing President Obama’s Fiscal Commission recommendations require that everyone take a hit?
My response (with tax insights from Jagadeesh Gokhale):
President Obama’s Fiscal Commission Report offers a useful start in reducing our budget deficits and national debt, but it hardly goes far enough. As several of my Cato colleagues have just noted here, here, here, and here, the report recognizes, to its credit, that our corporate income tax structure puts U.S. corporations at a considerable competitive disadvantage against their foreign competitors. And the report keeps military spending cuts on the table, even if there is much more to be cut. Yet by proposing a reduction in government spending from 24.3 percent of GDP today to 21.8 percent over the next 15 years — total federal spending as recently as 2000 was just 18.4 percent of GDP – it plays the old Washington game of calling a slower increase than previously projected a “cut.”
As for taxes, this report should be read in the context of a powerful argument in last Friday’s Wall Street Journal to the effect that over the past six decades, tax revenues as a percentage of GDP have averaged just under 19 percent, regardless of the top marginal personal income tax rate or whether taxes were cut or raised. What this suggests is that low tax rates spur income growth to leave the government’s revenues undiminished over the long-term. High tax rates do the opposite. It doesn’t take a large leap of faith to believe that this effect would be stronger for those who earn more and pay more in taxes. Indeed, among high earners are the nation’s business leaders – innovators who create new products and jobs – who would respond positively to the growth opportunity provided by a stable, low-tax-rate environment. So those who believe that we help ourselves by more heavily taxing the rich need to ask themselves whether it might not be better to cut rates and keep them stable instead. Wouldn’t that promote a robust economy and lift all boats – with the government continuing to generate 19 percent in revenues?
None of this has anything to do, of course, with whether our current out-of-control federal government is constitutionally authorized to do all it is doing. But it’s a start toward returning the government to within its constitutional limits. Had those limits been respected – as the Framers understood, unlike New Deal progressives — we wouldn’t be in this mess.
A Budget Plan: Don’t Buy Stuff You Cannot Afford
Some 75 new Republican members of Congress got there by promising to stop the federal government’s massive overspending. And as Chris Edwards noted, there have been a number of lists of budget cuts proposed recently.
Saturday Night Live did a sketch back in 2007 that might be useful to Tea Partiers and new members of Congress. It’s about a self-help plan called “Don’t Buy Stuff You Cannot Afford.” Since the federal government is running deficits well over a trillion dollars a year, I’d say this plan would be good advice:
Hat tip to Jonathan Witt at the Acton Institute’s PowerBlog, who points out that if this were a perfect analogy, the book author would be more agitated because “the couple has been spending the author’s money using a credit card he had idiotically loaned them a few years before.”
Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law
At more than 2,500 pages and 500,000 words long, the new health care bill — the Patient Protection and Affordable Care Act — is the most significant transformation of the American health care system since Medicare and Medicaid.
The bill’s complexity has created confusion, frustration, false expectations, and conflicts about its coverage and impact. An incisive new report by Cato scholar Michael D. Tanner provides an authoritative and deeply revealing explanation of its provisions.
The diagnosis: the bill is bad medicine. It is likely to make Americans less healthy, less prosperous, less able to direct their own health care decisions, and places huge burdens on our economy and already massive national debt. It is now certain that the debate over health care reform will be with us for much longer.
Update: Printed copies are now available for purchase for $10.
Weak Defenses of Teacher Bailout
As the Obama administration continues to send mixed signals about the proposed $23 billion public-school bailout, rescue advocates are offering some very wimpy defenses of their cause. That is, except for the National Education Association, which has launched a PR blitz for the bailout in its grandest — and most shameless — tradition of using cute kids to get lots of dues-paying members:
OK, enough of the NEA. The more numerous defenses of the bailout try to offer more reasoned and less emotional arguments for the bailout than does the NEA. But not much more reasoned.
The Greek Model
It was a good idea to get science and democracy from the ancient Greeks. It’s not such a good idea to get fiscal policy from the modern Greeks.
But that’s the way we’re headed.
Greece has a budget deficit of 13.6 percent. We’re not in that league — ours is only 10.6 percent, the highest level since 1945.
Greece has a public debt of 113 percent of GDP. We’re not there yet. But the 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion.
Under President Obama’s budget, debt held by the public would grow from $7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent of GDP) at the end of 2020. It could rise to 215 percent of GDP in 30 years. Welcome to Greece.
Here’s a graphic presentation of the official debt and real net liabilities of various countries, including the United States and Greece at the right. (From the Telegraph, apparently based on Jagadeesh Gokhale’s report.)
And here’s a Heritage Foundation chart on where the national debt is headed in the coming decade:
Paul Krugman wrote, “My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.” Now he was writing in 2003, when a different president was in office, but he was also warning about the possibility of a ten-year deficit of $3 trillion. Presumably the same warnings apply to today’s much larger deficit projections. And he was absolutely right to fear that government would turn to inflation as a supposed solution.
CBO on Obama Debt Orgy
This week the Congressional Budget Office released its analysis of the president’s FY2011 budget. The CBO projects that combined deficits for 2011-2020 under the president’s budget will be $1.2 trillion (for a total of $9.7 trillion) higher than the Office of Management & Budget’s forecast.
The CBO projects that debt held by the public as a percentage of GDP will be significantly higher:
One major reason why the CBO projects higher deficits than the OMB is because the CBO projects that cumulative revenue over the period will be lower (its economic growth assumptions aren’t as rosy as the OMB’s).
But a lack of revenues isn’t the big problem. The CBO projects that revenues as a percentage GDP would rebound from 14.5 percent in FY2010 to 19.6 percent in FY2020. The big problem is that spending as a percentage of GDP is projected to remain at post-war record highs throughout the decade:
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