Fighting the war on terrorism will require a sustained
commitment to fund national defense programs because it will
clearly be a long war. At the same time, the U.S. needs to fund
defense programs that protect the American people and U.S. friends
and allies against the enduring threats posed by hostile states
such as Iran and North Korea. Finally, there are looming threats,
such as one posed by a hostile China.
The Bush Administration's defense budget request, released on
February 5, 2007, would commit $647 billion to national defense in
fiscal year (FY) 2008. At 4.4 percent of gross domestic product
(GDP), this should be adequate to meet America's immediate national
However, the budget request fails to answer the question of
whether or not this commitment of resources to national defense
will be sustained for the remaining four years of the five-year
budget period. The Bush Administration has deferred cost estimates
of ongoing operations in the war on terrorism because projecting
the precise costs of these operations is impossible this far
in advance. Nevertheless, this omission shows defense budgets
declining after FY 2008 to 3.2 percent of GDP by FY 2012.
Congress can ensure that it is providing adequately for national
security by making a firm commitment now to fund the national
defense at no less than 4 percent of GDP. Protecting the lives and
freedom of the American people is certainly worth 4 percent of
national income. This commitment will require Congress to add
roughly $400 billion to the defense budget for the four-year
period from FY 2009 to FY 2012, which it can do by amending the
pending budget resolution. Clearly, a portion of this money will be
allocated to ongoing operations to counter terrorists. The
remainder should go to the core defense program, with a special
emphasis on developing and deploying the next generation of
weapons and equipment> that U.S. forces will need to fight
effectively in the future.
The Administration's defense Budget
The Bush Administration's budget request for FY 2008 through FY
2012 shows a number of external and internal pressures on the
defense budget. The external pressures are posed by the continuing
and projected growth in spending for the three major entitlement
programs: Social Security, Medicare, and Medicaid. If these
entitlement programs are not reformed, the growth in entitlement
spending will crowd out needed defense funding. This comes at a
time when defense expenditures relative to GDP are already
relatively low. (See Chart 1.)
The internal pressures stem from the high cost of military
operations and the increasing costs (both gross and per capita) of
compensating military personnel. While defense reform efforts
will alleviate some of the internal pressure on the defense
budget, these problems cannot ultimately be solved without a
sustained commitment by Congress to provide at least 4 percent of
GDP for defense.
In terms of claims on the total budget, the defense account is
continuing to lose ground to domestic mandatory spending programs
(e.g., Social Security, Medicare, and Medicaid), despite the
ongoing war. This trend will continue through the entire five-year
budget period. (See Chart 2.)
Regarding the internal pressures on the defense budget, the
trends have been in favor of spending on today's forces rather than
investing in tomorrow's forces. The funding for operations and
support activities, the sum of the operations and maintenance
account and the military personnel account, continues to rise as an
overall share of the Department of Defense (DOD) budget. At
the same time, spending on modernization, the sum of the research
and development account and the procurement account, has
fallen as a share of the DOD budget. (See Chart 3.)
Specifically, operations and support activities continue to
absorb roughly 60 percent of DOD budget authority. modernization
activities absorb only about 35 percent. By comparison, the two
activities approached parity in the 1980s, when operations and
support activities absorbed only slightly more than
The trend toward operations and support receiving higher shares
of the core defense budget is driven largely by the increasing per
capita compensation cost for military personnel and the higher
operational tempo. During the 1990s, the gross cost of compensating
military personnel was held in check by a 24 percent reduction in
manpower; but this pressure valve on manpower costs is closing
because the Bush Administration has proposed adding 92,000 soldiers
and Marines to the force by 2012, and per capita military compensation
costs continue to rise, more than doubling in the past 10
years. (See Chart 4.) A major contributing factor is the cost of
military health care. The FY 2008 defense budget allocates $38.7
billion to providing health benefits to military personnel and
The trend toward modernization receiving smaller shares of the
core defense budget is largely the result of the Clinton
Administration's "procurement holiday" in the 1990s. The
recovery from this unwise choice is still incomplete. The enduring
effect of the procurement holiday is an imbalance between the
procurement account (the account for purchasing new weapons and
equipment>) and the account for researching and developing new
weapons and equipment> technology.
In the 1980s, procurement consumed more that 70 percent of
the modernization budget. (See Chart 5.) The core defense budget
for FY 2008, despite a generous addition to the procurement account
over FY 2007 levels, would still leave procurement at well below 60
percent. As a result, important new weapons programs must be
stretched out, which increases unit costs, decreases the numbers of
new weapons available to the military, and prevents their timely
delivery. For example:
- The Navy has been forced to reduce construction of
Virginia-class submarines to one per year even though
constructing two per year could have reduced the unit cost to $2
billion per boat.
- The Air Force has been forced to scale back dramatically its
purchasing of F-22 Raptor tactical fighters. It is now slated
to obtain just 183 F-22s despite its requirement for 381.
- The Army has been forced to extend the production time for its
Future Combat System by five years.
Sustaining Resources for National
Maintaining a healthy national defense program has three
prerequisites. The first is a sustained commitment to
robust funding for national defense. This is axiomatic. A robust
defense program cannot be maintained without a sustained
commitment to provide the necessary funds. Congress should
therefore establish a floor of 4 percent of GDP for national
defense and firmly commit to resisting all attempts to go below
The second prerequisite is to reform Social Security,
Medicare, and Medicaid. In the long run, projected growth in
spending on these three entitlement programs will make it
impossible for Congress to honor its commitment to provide at least
4 percent of GDP to national defense. Even in the near term,
entitlements will make allocating adequate resources to national
defense incrementally more difficult.
The third prerequisite is to spend the resources provided to
national defense wisely. This entails rebalancing the internal
defense accounts to meet long-term needs. Specifically, this means
increasing funding for the core defense programs if and when
supplemental appropriations to support ongoing contingency
operations decline, shifting resources from the operations and
support accounts to the modernization accounts, and increasing the
share of the modernization accounts devoted to procurement.
Providing the Necessary Resources for National Defense.
Providing adequate funds for national defense starts with
recognizing that the Bush Administration's five-year defense budget
request provides sufficient resources in FY 2008 but falls short in
the next four years. Thus, the Administration's budget from
FY 2009 through FY 2012 reflects a roughly $400 billion defense
funding gap in budget authority. (See Chart 6.)
- Fill this gap by drafting a budget resolution that adds the
necessary budget authority to the five-year national defense
account. The relevant defense budget targets should be $612.3
billion for FY 2009, $644.5 billion for FY 2010, $677.5 billion for
FY 2011, and $711.4 billion for FY 2012.
- Make a clear commitment to sustain funding for national
defense beyond the five-year budget period. It can do this by
including report language that pledges Congress to allocate no
less than 4 percent of GDP to national defense for the indefinite
Reforming Social Security, Medicare, and Medicaid.
Social Security, Medicare, and Medicaid spending has absorbed ever
higher portions of the federal budget since the 1960s. In general
terms, this growth has come at the expense of the defense budget.
This trend cannot continue indefinitely. Indeed, the United States
is facing a fiscal crisis because spending on Social Security,
Medicare, and Medicaid is projected to increase rapidly. Each of
these three programs is forecast to grow faster than the overall
economy between 2005 and 2030. (See Chart 7.)
The implications for national defense are clear. Spending 4
percent of GDP for national defense will quickly become impossible
unless Congress reforms Social Security, Medicare, and
Given the size of the Social Security, Medicare, and Medicaid
programs, reforming them will take time. Thus, Congress should
Some Members of Congress will argue that any reform of these
programs is tantamount to a draconian cut. It is nothing of
the sort. None of the current entitlement reform proposals
would cut spending on these programs; they would only limit future
Outlays for Social Security, Medicare, and Medicaid
currently total 8.7 percent of GDP. By comparison, the defense budget
proposal in this paper would allow future defense spending to
decline slightly as a share of GDP from the proposed FY 2008 level
and asks only that defense spending keep pace with economic growth
after 2008. Further, the proposed defense benchmark (4 percent
of GDP) is less than half of the percentage of GDP that will be
spent on the three major entitlement programs for the
Continuing to Fund Anti-Terrorist Operations Separately.
In times of war, there is always the challenge of not letting
the requirements for current operations undermine the military's
ability to field first-rate forces in the future. The Bush
Administration has recognized this challenge and responded by
using supplemental appropriations to fund ongoing operations in
fighting the war against Islamic terrorists. This has served the
purpose of keeping these expenditures from crowding out core
investments in future defense programs. If the costs of current
operations were incorporated in the annual defense budget, the
temptation to rob future military capabilities to fund current
operations would have been overwhelming.
Congress should therefore continue this practice of funding
current contingency operations through supplemental appropriations.
Ultimately, the 4 percent benchmark is intended to protect the core
defense program and future defense capabilities. This means
that the roughly $400 billion that Congress should add to the
defense budget in the latter years of the budget period will go to
both supplemental appropriations and the annual defense
appropriations bill. If the funding requirements for ongoing
operations start to decline, the resources should be shifted to the
By the same token, the Bush Administration and Congress should
resist the temptation to fund elements of the core defense
program out of supplemental appropriations bills. Doing so
will tie enduring defense programs to a funding source that could
easily decline in future years.
Rebalancing Military Compensation. Without reform, future
increases in the per capita cost of military compensation will
crowd out needed spending on military modernization in the core
defense budget because the overall size of the military will
increase. Ultimately, rebalancing military compensation will
require a number of significant reforms. Evidence suggests that the
current compensation system is weighted too heavily in favor
of in-kind and deferred compensation over direct cash
To begin this rebalancing effort, Congress should:
- Apply reforms similar to those that have been proposed
regarding the indexing of Social Security benefits. If retirees
receiving Social Security benefits are asked to accept less
generous indexing of those benefits, it is entirely
appropriate to ask the same of military retirees. This does
not mean that a new indexing formula for military retirement
benefits must be exactly the same as the one applied to Social
Security benefits. The military retiree community is much smaller
than the population of Social Security recipients and has
- Move the military health care system away from a defined
benefit plan and toward a defined contribution plan. While the
DOD touts its $38.7 billion system that provides benefits to
9.2 million people "as one of the best healthcare programs in the
world," this claim is far from obvious. While the system is
clearly one of the most generous, it may be one of the most
A key problem with the U.S. health care system overall is that
it often precludes individuals from assuming at least some
responsibility for making decisions about their care. The military
health care system is more extreme in this regard because it
encourages beneficiaries to treat health care as a free good or
service and consume it on the basis of whim as opposed to need.
Structuring the military health care system as a defined
contribution plan would give its 9.2 million participants greater
freedom of choice and more control over their health care
decisions. Greater individual control is also likely
to impose more discipline on the system with respect to how it
uses its resources.
Increasing Military Modernization Funding to $200 Billion by
FY 2014. The Bush Administration's FY 2008 budget request
gives a significant boost to the modernization program in the core
defense budget. If Congress approves the request, the 13 percent
increase over FY 2007 would bring modernization funding to $176.8
modernization funding after FY 2008 is less certain because
the Bush Administration provided neither a budget authority
estimate for the core defense program nor estimates for
modernization funding in the latter years of the budget period.
This is a cause for concern because of the $400 billion
funding gap from FY 2009 through FY 2014.
Congress should approve the Bush Administration's military
modernization funding request for FY 2008 and thereby establish the
foundation for future increases. Congress should also fill the gap
in the proposed five-year defense budget, which should leave
sufficient room to reach the $200 billion target for
modernization in FY 2014. This kind of sustained funding for
modernization will provide the military with the new weapons and
equipment> that it will need to be a fully capable force a
generation from now.
Increasing the Procurement Account's Share of modernization
Spending to at Least 60 Percent by FY 2014. The Bush
Administration's FY 2008 budget request for the core defense
program also takes a major step toward rebalancing the internal
structure of the modernization program. All of the increase in the
modernization accounts for FY 2008 over the FY 2007 estimate goes
to the procurement account. The $101.7 billion for procurement in
budget authority therefore constitutes over 57 percent of the
entire modernization program. Clearly, this represents a major step
forward in recovering from the procurement holiday of the
Congress should approve the Bush Administration's
procurement request for the core defense program and resist
all temptations to shift resources away from procurement and toward
research and development. Further, it should be prepared to
sustain this rebalancing action in future defense
authorization and appropriation bills by making sure that
procurement is greater than 60 percent of total modernization
budget in 2014. Again, filling the gap in the budget for the core
defense program in the latter years of the budget period should
provide sufficient room in the overall budget to accommodate
The United States was founded on the basis of individual
liberty. As a result, the Constitution assigns to the federal
government the primary responsibility to "provide for the common
defence." It is entirely reasonable to expend 4 percent of national
income in the defense of freedom. Nevertheless, the federal
government is now allocating a smaller share of national income to
defense than the average for the past four decades, despite the
ongoing war against terrorism.
Projected growth in entitlement spending, not defense spending
at this level, is at the core of the looming fiscal crisis facing
the federal government. defense expenditures at this level will
jeopardize neither the health of the economy nor the
prosperity of the American people, but a sustained
commitment to defense is necessary to sustain liberty.
Paying 4 percent for freedom is worth the price. Indeed, it is a
-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.
Management and Budget, Historical Tables, Budget of the United
States Government, Fiscal Year 2008 (Washington, D.C.: U.S.
Government Printing Office, 2007), p. 89, at
(February 26, 2007).
calculation based on figures from Office of Management Budget,
Historical Tables, pp. 89 and 193.
Department of Defense, "President Bush's FY 2008 Defense Budget
Submission," February 5, 2007, p. 2, at
(February 26, 2007).
Department of Defense, "FY 2008 President's Budget for Defense,"
February 5, 2007, at
(February 26, 2007), in U.S. Department of Defense, "DoD News
Briefing with Secretary Gates and Under Secretary Jonas from the
Pentagon," transcript, February 5, 2007, at
(February 26, 2007).
and David D. Gentilli, "Congress Should Accelerate Submarine
Procurement," Heritage Foundation WebMemo No. 1084, May 17,
2006, at www.heritage.org/static/reportimages/6DF5AC22B7AFF05B1561358095F491D6.pdf.
Network, "Bush Defense Budget Adequate Next Year, But Then Falls
$400 Billion Short," February 7, 2007, at
(February 9, 2007; subscription required).
"Army Trims FCS, Stretches Program to Meet Current Needs,"
Congress Daily AM, February 8, 2007.
"An Adequate Defense Budget That Must Be Sustained into the
Future," Heritage Foundation WebMemo No. 1342, February 5,
2007, at www.heritage.org/static/reportimages/D27C51B165E23832E7E6434823B27579.pdf.
James Jay Carafano, Ph.D., Alison Acosta Fraser, Brian M. Riedl,
and Will Packer, "Protecting Homeland Security and Defense by
Reining in Entitlements," Heritage Foundation WebMemo No.
1352, February 8, 2007, p. 2, at .
Congressional Budget Office, "Military
Compensation: Balancing Cash and Noncash Benefits," Economic and
Budget Issue Brief, January 16, 2004, at
(February 27, 2007), and Cindy Williams, "Paying Tomorrow's
Military," Regulation, Vol. 29, No. 2 (Summer 2006), pp.
(February 27, 2007).
Department of Defense, "FY 2008 President's Budget for
Carafano, Ph.D., "A 'Rucksack' for U.S. Military Personnel:
Modernizing Military Compensation," Heritage Foundation
WebMemo No. 1020, February 14, 2007, at www.heritage.org/Research/NationalSecurity/em1020.cfm
(March 2, 2007).
Department of Defense, "President Bush's FY 2008 Defense Budget
Submission," p. 10.