May 12, 2010 | Commentary on Federal Budget, Missile Defense

Gates, Hill Should Change Benefits

We need to cut weapons spending, trim the bloated ranks of the military bureaucracy and reign in runaway pay and benefits Defense Secretary Robert Gates told the nation Saturday in his speech from the steps of the Eisenhower Library in Kansas. And that speech came a few days after Gates warned the Navy to rethink its reliance on a carrier fleet of the current size, on enormously expensive new nuclear submarnes and he urged the Marines to reexamine its amphibious mission and placed crosshairs on their Expeditionary Fighting Vehicle. So we asked Mackenzie Eaglen of the Heritage Foundation what Congress needs to do and whether Gates is on the right path or is veering off course. Read on to find her answers.

Secretary of Defense Robert Gates has called for more spending cuts to keep the defense budget flat for the future. But these cuts will not eliminate the chief problem: The defense budget is projected to remain static or decline, yet the nation seems likely to keep asking the military to do more with less.

This is the primary reason defense dollars are increasingly stretched. An honest solution would be to either match defense budgets with missions or to reduce U.S. foreign policy commitments.

While Gates says there simply cannot be growth in defense budgets, the fact is that what America chooses to spend on national security remains a deliberate, political choice.

There are, however, legitimate other reasons why defense spending is constrained. These include:

  • Historical hangovers. Years of underinvestment in defense — especially during the 1990s — have had lasting effects. It hasn’t yet been possible to catch up, especially with the military at war since 2001.
  • Crowding out by domestic entitlements. Exploding domestic entitlements, health care costs, and bailouts are squeezing the defense budget. If left unchecked, their growth would eventually consume all federal tax revenues.
  • Defense entitlements pressure on modernization. Paralleling the trends in the larger federal budget, key defense spending priorities are being crowded out by escalating personnel costs, particularly health care programs and numerous permanent but unfunded deferred and in-kind benefits.
  • Decreasing economies of scale. The cost of equipment is rising faster than the overall defense budget and outpacing inflation in the wider economy. A chief cause of this problem is due to declining build rates and lost economies of scale. Other factors include the rising costs of fuel, input materials, labor, and increasingly complex systems.

While Secretary Gates outlined many internal defense budget imbalances, his remedies are inadequate — especially when compared to the great lengths he’ll go to cut weapons systems.

Real reform should funnel money back to the shrinking priority of modernization. Current military compensation is based primarily on a “one size fits all” approach: the longer you serve, the more you’ll earn. That doesn’t accurately reflect the demands of America’s youth or the fact that the vast majority of those serving won’t make the military a career. Defense officials and Congress could start by aligning military compensation with the needs of a highly-mobile 21st century workforce.

While compensation reform may require scaling back the rate of growth in future benefits, it would not cut existing benefits to anyone in uniform. In fact, the goal would be to ultimately increase cash payments to servicemembers.

Future military compensation should be shifted to provide more cash up-front, giving personnel greater mobility throughout their careers. That would also allow each servicemember to decide how best to use their benefits, thus increasing their value. DoD should also move toward a continuum of service model that allows troops to move more flexibly between the active and reserve components and between the military, private sector, and civil service.

To get started, the military should refer to the 10th Quadrennial Review of Military Compensation and establish a pilot program that provides commanders the flexibility to credit top performers (and fast promotees) with extra years of service and therefore extra pay. Pentagon officials should also consider offering an annual bonus called credential pay for those with training and skills that are in high demand by commanders regardless of rank or assignment.

Not only must compensation attract high-quality recruits, but it should provide additional performance incentives. There should be bonuses for top achievers, increased choice of assignments and deployments, additional time off, and opportunities for higher education.

Congress should also launch a pilot program to change the health care and retirement system. Instead of defined-benefit plans, the military should offer defined-contribution plans, which would allow employers — whether the government, military or private sector — to contribute.

Congress should begin reforming military health care by shifting new enlistees to a defined-contribution system that would stay with them as they move to different jobs and employers, government or private. Additionally, Congress should eliminate TriCare copayments for preventative services in order to encourage enrollees to seek out preventative care early, improve their health and reduce overall medical costs. Congress should carefully examine the impact of moving health care coverage for military dependents to the Federal Employees Health Benefits Pro­gram. Of course, some exemptions would have to be built into the system for dependents unable to receive care outside of the military due to unique circumstances.

It’s also important to change the military retirement system. It’s time to phase in a defined-contribution retirement plan where vesting begins at the tenth year of service. The Pentagon would contribute to a fund for each member, and members would then own the fund once vested. It’s similar to a civilian 401(k). Inducements could include “gate pay” (a multiple of basic pay) given to those who complete specific service milestones and “separation pay” to those who separate after they are vested at 20 years and leave the service.

The United States needs a military with the best equipment and the best people. We can have both, if lawmakers take the correct measures to fix the defense budget and the larger federal budget.

Mackenzie Eaglen is a defense analyst at the conservative Heritage Foundation.

About the Author

Mackenzie Eaglen Research Fellow for National Security Studies, Allison Center for Foreign Policy Studies
Douglas and Sarah Allison Center for Foreign and National Security Policy

First appeared in Dodbuzz