"Immense Expense Is Mainly in Defense" is a parody tune
performed by the Capitol Steps, a Washington-based troupe; but
while the tune has a nice rhyme scheme, it does not reflect the
facts concerning recent federal budgets. By historical standards,
the federal government's investment in defense is relatively
modest. Given that the United States has been at war since
September 11, 2001, and has been conducting significant military
operations in Afghanistan and Iraq, this may come as a
surprise to many Americans.
The perception that the nation's defense expenditures are
larger than they really are is the result of a widespread
acceptance of 10 myths about the defense budget. These myths range
from the assertion that defense expenditures impose a large burden
on the U.S. economy to the assumption that the defense budget is
skewed in favor of the defense contractors that manufacture weapons
and equipment for the Department of Defense.
It is time for Members of Congress to level with the American
people regarding the true scope of the defense budget and its
internal structure. Americans are firmly committed to maintaining a
strong national defense, but they look to their leaders in Congress
to reflect their views and take appropriate action. They extend to
Congress an extraordinary trust--a trust that Members betray if
they choose not to correct inaccuracies regarding the defense
budget that are widely assumed to be true.
This betrayal of trust can apply at either of two levels.
- If some Members of Congress perpetuate the inaccuracies as a
way to thwart the desire of the American people to maintain a
strong national defense, they are using illegitimate means to
realize anti-democratic ends. Trying to change public opinion in an
open and honest fashion is one thing; trying to do so by obscuring
the relevant facts is quite another.
- Alternatively, if Members of Congress are leaving the
inaccuracies undisturbed because of the inherent difficulties
involved in convincing the American people that something they hold
to be true is actually false, they are effectively precluding
the American people from making informed decisions regarding a
critical area of public policy.
At both levels, Congress has a moral and political obligation to
inform the public of the truth. This is particularly so when the
subject is providing for national security.
The 10 Myths
The American people are likely to accept the following 10
myths about the defense budget based on nothing more than the
feeling that they "sound about right." In these cases, however,
what sounds right is demonstrably at odds with the facts.
Members of Congress should therefore be able to dispel these
myths by succinct statements to their constituents regarding
the true state of affairs.
Myth #1: Defense expenditures are so
large that they overburden the U.S. economy.
According to a Gallup poll on February 1-4, 2007, a clear
plurality (43 percent) of Americans think that the federal
government spends too much on defense. This is the highest number
that Gallup has recorded in answer to the question about the level
of defense spending since the end of the Cold War.
While the response to the Gallup poll cannot answer the question
of why the American people feel the way they do, it is reasonable
to surmise that they assume the federal government is spending much
more on defense to support operations in the ongoing war than is
actually the case. This assumption is even more justified in
the context of the defense budget's claim on the national economy
or gross domestic product (GDP).
Instinctively, Americans are likely to equate the current state
of war with the circumstances facing the nation during World War
II. In this context, a chart that shows the share of GDP devoted to
defense would likely prove surprising. Chart 1 shows that the U.S.
commitment to defense peaked during World War II at over 34 percent
of GDP, which obviously would surprise no one, but it also shows
that the portion of GDP devoted to defense is much lower than it
was during World War II and has been on a fairly consistent
downward trend since the onset of the Cold War. It now rests at
roughly 4 percent of GDP. In addition, the U.S. spends less on
national defense than the total amount it spends on alcoholic
beverages, tobacco, cosmetics and similar products, entertainment,
If Members of Congress put the appropriate amount of time and
effort into educating their constituents about the modest
burden that defense expenditures impose on the national economy,
they should have little problem convincing them that defense
expenditures will not somehow bankrupt the nation. Specifically,
Members should work to convince their constituents to support
defense budgets that spend at least 4 percent of GDP for the
Myth #2: Defense expenditures are the
largest component of the federal budget.
Given the findings of the Gallup poll, it is reasonable to
assume that the American people believe that defense absorbs more
dollars than any other major component of the federal budget. This
belief is factually incorrect. The mandatory programs-- which
consist largely of Social Security, Medicare, and Medicaid--absorb
more than double the share of the federal budget that is devoted to
The federal budget consists of four major components:
- Mandatory entitlement programs;
- Domestic discretionary spending for things such as the justice
system, transportation, environmental programs, and housing
- Defense; and
- Interest on the national debt.
Since the end of the Cold War, mandatory spending has
consistently claimed a far larger portion of the federal budget
than defense has claimed. In fact, during the 1990s, defense came
close to being the smallest of the four components. (See Chart
Consistent with the goal of devoting at least 4 percent of GDP
to defense, Congress will need to maintain defense spending at no
less than 20 percent of federal outlays. This is based on the
Bush Administration's projected level of total federal outlays
through fiscal year (FY) 2012. In fact, defense's share will need
to approach 22 percent by the end of the five-year budget
Myth #3: Defense expenditures can be
maintained at adequate levels without reforming the major
Chart 2 does not reveal that long-term projected spending
on the three major entitlement programs will increase rapidly in
the decades ahead. According to U.S. Comptroller General David M.
Walker, Social Security, Medicare, and Medicaid are projected to
grow by 147 percent, 166 percent, and 331 percent, respectively,
between 2005 and 2030 in terms of inflation-adjusted dollars.
Further, rapid growth in entitlement spending will likely be
accompanied by correspondingly larger interest payments
because the entitlement expenditures will become so large that by
2050 they will absorb all federal revenues and ultimately require
large-scale debt financing to fund any other programs.
This is based on a projection of federal revenues at levels
consistent with the historical average. The casualties of the twin
pressures of entitlement expenditures and mounting interest
payments on the national debt will be the defense and domestic
components of the budget, starting with defense.
Defense expenditures cannot be sustained without reform of
Social Security, Medicare, and Medicaid. Looking ahead,
Members of Congress need to convince their constituents that
current commitments to entitlement benefits are unsustainable.
This will not be easy. If they cannot convince their constituents
of the need to control future growth in entitlement spending, they
have no hope of convincing them of the need to maintain
defense expenditures at 4 percent of GDP.
Myth #4: The defense budget is skewed
in favor of purchasing new weapons at the expense of compensation
for military personnel.
On March 20, 2007, the Senate Judiciary Committee held a
hearing entitled "Combating War Profiteering: Are We Doing
Enough to Investigate and Prosecute Contracting Fraud and Abuse in
Iraq?" Hearings like this can lead to a public
perception that lobbyists working for defense contractors are
extremely powerful and have tilted defense budget deliberations in
the executive branch and Congress toward weapons purchases at the
expense of compensation and benefits for military
The flaw in this perception is that, since the end of the Cold
War, defense budgets have favored the military pay account over the
procurement account. (See Chart 3.) The military pay account
surpassed the procurement account in the early 1990s. During the
"peace dividend" period in the 1990s, military pay declined
marginally, while the procurement account plummeted. With some
justification, this period is sometimes referred to as the
Since September 11, 2001, both the military pay and procurement
accounts have increased. However, the military pay account has
remained far larger. This budget history suggests that service
members and their support organizations are at least as effective
as defense companies in lobbying Congress and that defense
companies support a strong pay and benefits package for the troops
as much as any other patriotic Americans do.
Congress needs to renew its commitment to buying the next
generation of weapons and equipment for the military. It should
start by resisting the temptation to demonize defense
contractors. After all, defense contractors provide the weapons and
equipment that help to maintain the U.S. military as the world's
premier technological force.
Further, Congress needs to support a steady increase in
procurement funding. The Bush Administration's FY 2008 defense
budget moves in this direction by increasing funding for the
procurement account in the core defense program by more than 25
percent over the FY 2007 level. Congress should accede to the
Bush Administration's funding request and prepare to sustain the
trend for increased procurement funding in future years.
Myth #5: U.S. military personnel are
not fairly compensated.
In abstract terms, it is easy to conclude that military
personnel--especially those who participate in highly dangerous
combat operations--are not paid enough. In tangible terms, the U.S.
can never pay these individuals enough for what they do.
Members of the military look to the intangible compensation that
comes from the knowledge that what they do is extremely important,
the sense of honor gained from their service, and the respect that
they receive from their fellow citizens. Nevertheless,
maintaining a good quality of life for military personnel is
essential to maintaining the nation's all-volunteer force.
As Chart 3 reveals, Congress has strongly supported funding
for military pay. While overall funding for this account
declined during the 1990s, overall manpower levels declined at a
faster rate during this period. As a result, compensation per
military person has increased steadily since the end of the Cold
Further, military personnel receive more generous in-kind
compensation (e.g., housing and health care) and deferred
compensation (e.g., retirement benefits) than is typical in the
Congress needs to determine whether it can better match the
tangible forms of compensation with the intangible benefits of
military service. Possible reforms of the overall military
compensation package could include creating a more flexible
military retirement system and moving the health care benefit
in the direction of a defined-contribution plan. At this point,
Congress should hold hearings on a broad range of options for
reforming the military compensation system to make it more
flexible, easier to manage, and more efficient.
Myth #6: The current military health
care system can be sustained indefinitely while avoiding structural
imbalances in the defense budget.
The Department of Defense is projected to spend $38.7 billion on
health care in FY 2008 for 9.2 million beneficiaries, which
includes family members of service personnel. This is roughly
28 percent of all direct compensation paid to military personnel.
The increasing cost of health care is not a problem unique
to the military sector, but it is likely to be far worse in the
defense sector. While calculating a comparable figure for
private-sector health care compensation is difficult, studies
suggest that health care constitutes 8.5 percent of compensation in
the private sector, which reflects an increase in dollar terms of
almost 50 percent since 2000.
Clearly, the U.S. needs to reform its health care system across
the entire economy. The military sector cannot expect to
exempt itself from the broader reform process. Regrettably,
Congress has not yet recognized this fact. When the Department of
Defense recommended an increase in participant fees in the military
health care system in the FY 2007 budget request--the first
increase in over 10 years--Congress rejected the proposal.
Absent reform, the Department of Defense will lack the resources
necessary to build new weapons and equipment while sustaining
necessary military operations. This will be the case even if the
overall national security budget is maintained at 4 percent of GDP.
Congress should recognize that reforming the military health care
system is not just about reducing costs or trimming benefits.
Proper reforms of the health care system should be more about
giving military personnel greater flexibility and control of
The chief cause of the unsustainable increases in health care
costs across the public and private sectors is that the
various health care systems hide the true cost of care from
recipients while depriving them of the opportunity to make informed
decisions regarding their own care. These systems
effectively teach recipients to treat health care as a free
good to be used on the basis of whim as opposed to need.
Additionally, the current approach represents a
least-common-denominator solution that assumes that all American
have essentially the same health care preferences. This lack of
flexibility causes numerous frustrations for health care
The need for flexibility in the military health care system is
made evident by the advantages of an overall personnel system that
gives service members more opportunities to move between active and
reserve military service and civilian employment. In this context,
a military health care system that is a component of a "rucksack"
of benefits that military personnel can select and carry with them
will bolster the all-volunteer military. The best option
to increase the utility and efficiency of the military health care
system is to move the system toward a defined-contribution plan
that maintains access to health care in a seamless fashion as
personnel move back and forth from active service to reserve duty
to civilian employment.
Myth #7: The military retirement
system can only be improved by increasing benefits within the
The current military retirement system requires a minimum of 20
years of service to receive any retirement benefit. This
necessarily puts the system at odds with a labor market that favors
much greater career mobility. As with health care reform, the
military retirement system needs to facilitate greater
opportunities for military personnel to move among various
forms of military service and civilian employment.
The best option for reforming the military retirement
system is to offer military personnel a variety of options that are
completely portable. Similar to the needed health care reform,
the military retirement system needs both to move toward a
defined-contribution plan and to be included in the same
benefits rucksack that is offered to military personnel.
Some will argue that this reform will undermine military
retention, but a properly designed defined-contribution plan can
avoid this problem. It is entirely possible for the military
services to structure their contributions to service members'
retirement accounts in a way that promotes longevity of
service. In fact, they could do so more effectively and efficiently
if they had the flexibility to target the contributions toward
military career lines in which longevity of service is most
important. Today's system treats all types of military service
and personnel the same.
Myth #8: Defense research and
development drives the nation's overall effort to advance
During the early years of the Cold War, research and development
(R&D) spending for defense accounted for roughly 80 percent of
all federal R&D spending, and R&D funding by the
federal government constituted over half of total R&D
spending in the U.S. economy. As a result, research and
development for national defense was effectively in the
driver's seat in the U.S. in the 1950s and early 1960s.
Since then, however, private-sector R&D spending has
slowly overtaken the federal government's R&D spending.
Similarly, total R&D funding by the federal government, both
defense and non-defense, has trended in the direction of a closer
balance. Clearly, defense is no longer the driver of national
research and development.
The good news for defense R&D is that overall funding levels
are marginally higher than they were during the latter half of the
20th century in terms of inflation-adjusted dollars.
Therefore, the Department of Defense has a significant amount
of R&D money to apply to obtaining the next generation of
weapons and equipment. However, the department can no longer
compete with other sectors of the economy, particularly the
private sector, and this circumstance is unlikely to change in
the foreseeable future. In fact, reverting to the circumstances of
the 1950s-- federal dominance of research and development-- would
not be in the nation's economic interests.
Given current and projected circumstances, Congress should
allocate defense research and development dollars along two
- The first line is research and development on technologies that
constitute unique niches for the defense sector and are of little
interest to the civilian economy. An obvious example is research
and development of the next generation of nuclear weapons to
meet the security requirements of the post-Cold War world.
- The second line is to scan the technologies emerging in the
civil sector and determine how best to apply them to national
defense. During the 1950s and 1960s, considerable attention was
paid to emerging defense technologies that could be "spun off" to
civilian applications. Today, the focus should be on civilian
technologies that can be "spun in" to defense
applications. Robotics and biotechnology are just two areas
that are ripe for exploration.
Myth #9: The U.S. is completely
self-reliant in defense production.
Since the end of the Cold War, the system that supplies the
Department of Defense with goods and services has diversified. Put
succinctly, the defense market has been "globalized."
For example, the Joint Strike Fighter, the next tactical fighter
aircraft, will be built by contractors in a number of nations.
In general terms, this transition has been a good thing for the
Department of Defense. It has spread the sources of goods and
services beyond what would otherwise have been a very narrow group
of suppliers, particularly during the 1990s when defense
procurement funding plummeted and the defense sector was
consolidated. It has also increased the economies of scale and
improved the chances that taxpayers' interests will be protected in
the defense acquisition market.
This is not to say that managing defense production in this
worldwide network of suppliers is without risk. The primary
concerns are maintaining very high levels of reliability of supply
and protecting against the diversion of advanced defense
technologies to existing or future enemies of the U.S.
Some Members of Congress will argue that the best option for
addressing these risks is for the U.S. to withdraw from the global
defense industrial market and construct a supply system that is
based exclusively in the U.S. They will argue that the best
means for achieving this goal is to expand "buy America"
restrictions and other protectionist measures.
Both the goal itself and the means for attaining it are
unrealistic and counterproductive. The preferable option is
for Congress to accept today's global defense supply structure and
to guide it through the funding mechanism for defense acquisition.
Congress should allow foreign involvement in defense
production by promoting "best cost" standards for these
acquisitions as it authorizes and appropriates funds. At the same
time, Members should seek to ensure that these foreign suppliers
will honor fundamental commitments regarding both reliability
of supply to the Department of Defense and protection of advanced
In short, Congress should not reject the participation of
foreign suppliers, but should accept such participation and seek to
manage it in a way that protects U.S. security. This should be
possible because the most likely candidates for foreign
participation in the U.S. defense market are industries
from countries that are allies or close friends of the U.S.
Myth #10: The time to find the next
"peace dividend" is approaching.
Some congressional opponents of U.S. military operations in Iraq
apparently hold the mistaken belief that those operations
constitute the entirety of the war against Islamic terrorists who
continue to threaten the American people. In reality, the conflict
in Iraq is only one battle in a much broader, long-term war that
shares some of the characteristics of the Cold War.
On the basis of their mistaken belief, these opponents
appear to be working to manufacture an American defeat in Iraq
to argue that the war on Islamic terrorists is over and that
Congress should slash the defense budget. Specifically, the
Congressional Progressive Caucus has offered a budget proposal
that would drive the defense budget to just $445.2 billion in FY
2012, which is over $125 billion less than the Bush
Administration's projected level.
Such a step would be extremely unwise and cannot be
justified, because the current financial burden imposed by defense
spending is not large by historical standards. Any cut from
current levels would put the U.S. military on the path to a hollow
force. This is because the starting point for the reductions is
already very low. The reductions proposed by the Congressional
Progressive Caucus lead to spending about 2.5 percent of GDP on
defense. Essentially, the Caucus is asking Congress to recreate the
circumstance that the U.S. military faced in the late 1970s.
In fact, the fiscal circumstance would be worse because in the late
1970s defense spending absorbed between 4 percent and 5 percent of
Former Senator James Talent (R-MO) recognizes the risks to
national security posed by the search for another peace dividend
and has proposed committing a minimum of 4 percent of GDP to
defense. Senator Talent's approach would ensure
that the federal government has the means to defend the American
people and the nation's vital interests for the remainder of the
long war against Islamic terrorists and against other threats
that may emerge.
The United States is engaged in a long war against Islamic
terrorists that could extend for many years into the future and
therefore is similar to the Cold War. The United States also needs
to build the military capabilities necessary to respond to
possible future threats from actively or potentially hostile
states. To fulfill these two responsibilities, Congress will need
to provide adequate funds to the Department of Defense.
At the same time, Congress needs to ensure a growing economy by
not burdening it with excessive federal spending. The risk to
future economic growth that is posed by excessive federal spending
is extremely serious, but the root of that threat is not the
Despite the ongoing war against Islamic terrorists and the
need to meet enduring national security requirements, the defense
budget is not large. By itself, it poses no threat to the overall
economy. With the future of free peoples at stake, spending 4
percent of the national economy for defense is well worth the
Baker Spring is F. M. Kirby
Research Fellow in National Security Policy in the Douglas and
Sarah Allison Center for Foreign Policy Studies, a division of the
Kathryn and Shelby Cullom Davis Institute for International
Studies, at The Heritage Foundation.
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2008 (Washington, D.C.: U.S. Government Printing Office, 2007),
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Tough Choices Today," U.S. Government Accountability Office,
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