In March 2007, the Bush Administration submitted a
five-year defense budget plan that projected funding levels
insufficient to provide a ready and modernized fighting force. On
February 4, 2008, the Bush Administration released its fiscal year
(FY) 2009 defense budget request. It would provide $541.1
billion--3.6 percent of gross domestic product (GDP)-- in
budget authority for national security, not including a $70
billion supplemental request to fund ongoing operations in the
war against Islamic terrorists. While the budget authority
would increase by roughly $10 billion per year until FY 2013, it
would decline to less than 3.2 percent of GDP in 2013.
Fighting the long war on terrorism will require a sustained
commitment to fund national defense programs. However, this is
not the only national security challenge that the U.S. military
will face in the coming decades. The U.S. needs to fund defense
programs that will protect the American people and U.S. friends and
allies against the ongoing threats from hostile states (e.g., Iran
and North Korea) and looming threats like the one posed by a
hostile China. The FY 2009 budget request fails to provide adequate
funding for the basic building blocks in the core defense
program that are needed to protect the national security over
the long term.
Congress should ensure that it provides adequately for national
security by making a firm commitment to fund core defense programs
at no less than 4 percent of GDP for the next 10 years. Senator
Elizabeth Dole (R-NC) and Representative Trent Franks (R-AZ) have
introduced companion bills (S.J. Res. 25 and H.J. Res. 67) that
would make such a commitment. This commitment would require
Congress to add roughly $59 billion in budget authority to the core
defense budget in FY 2009 and a total of $532 billion over
five years from FY 2009 through FY 2013. Congress can achieve this
outcome by amending the upcoming FY 2009 budget resolution.
The core defense budget would go toward maintaining the
structure of the military, 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.
Protecting the lives and freedom of the American people is
certainly worth 4 percent of national income.
The Administration's FY 2009 Defense
The Bush Administration's budget request for FY 2009 through FY
2013 continues to reflect a number of external and internal
pressures on the defense budget. The external pressures are posed
by the rapid projected growth in spending for Social Security,
Medicare, and Medicaid. If these entitlement programs are not
reformed soon, they will crowd out needed defense funding even
though defense expenditures as a percentage of GDP are already near
a post-World War II low. (See Chart 1.)
The internal defense budget pressures are primarily the
result of 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 the core defense
In the total federal budget, despite the ongoing war, the
defense account is continuing to lose ground to domestic mandatory
spending programs (e.g., Social Security, Medicare, and Medicaid).
The FY 2009 budget request would continue this trend through the
entire five-year budget period. (See Chart 2.)
External Pressures. 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, but this trend cannot
continue indefinitely. Indeed, the United States is facing a
fiscal crisis because spending on Social Security, Medicare, and
Medicaid is forecast to grow faster than the overall economy
between 2005 and 2030. (See Chart 3.)
Outlays for Social Security, Medicare, and Medicaid
currently total 8.7 percent of GDP. By comparison, the
proposed defense benchmark (4 percent of GDP) is less than half of
what will be spent on the three major entitlement programs in the
The implications for national defense are clear. Spending 4
percent of GDP on national defense will quickly become impossible
unless Congress reforms Social Security, Medicare, and Medicaid.
Some Members of Congress will likely argue that any reform of these
programs is tantamount to a draconian cut, but it is nothing of the
sort. None of the current entitlement reform proposals would cut
spending on these programs; they would only limit future
Given the size of the Social Security, Medicare, and Medicaid
programs, reforming them will take time. Thus, Congress should
Internal Pressures. The military faces a variety of
internal budget pressures ranging from increasing personnel
costs to the imbalance between the operations and support accounts
and the modernization account.
Military Retirement Benefits. The success of the
all-volunteer military depends on a well-designed compensation
package that attracts highly qualified people to military service.
It also depends on capping the spiraling increases in manpower
costs. (See Chart 4.)
While offering a generous compensation package will meet
recruitment needs, a well-designed package would focus on
compensating military servicemembers in ways that meet their
needs most directly. This tailored and more affordable approach
would also ensure that taxpayers get the best return on their
investment in the military. Such a modern military compensation
package would recognize that military service personnel, like
their civilian counterparts, are part of a highly mobile
national labor force.
Above all, the military compensation package that best supports
the all-volunteer force in the 21st century will be flexible. In
general terms, this flexibility is best achieved by favoring
cash compensation over in-kind and deferred benefits and
designing the remaining benefits around defined-contribution plans.
Labor mobility makes trying to design benefit packages to meet the
unique needs of every servicemember difficult and inefficient. Cash
compensation, however, would provide servicemembers more
freedom to decide how to use their benefits in ways that best meet
The military should reform its current retirement system by
adopting a new structure in which the military contributes to each
servicemember's retirement account. The plan should also
permit both the servicemember and civilian government and private
employers to make contributions. Finally, the plan should allow the
servicemember to bequeath the assets to the servicemember's heirs
upon his or her death without paying estate or death taxes.
Military Health Care. A key problem with the U.S. health
care system is that it often precludes individuals from assuming at
least some responsibility for making decisions about their own
care. The military health care system takes this to an extreme by
encouraging beneficiaries to treat health care as a free good or
service and consume it at whim rather than according 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 would also
impose more discipline with respect to how servicemembers and their
dependents use the system's resources.
Pentagon leaders should seek congressional authorization to move
health care coverage for dependents to the Federal Employees Health
Benefits (FEHB) system on terms consistent with the benefits
available to federal civilian employees. This would permit the
military health care system to focus on serving members of the
military and meeting the unique needs of military
For future military retirees, the military should seek
congressional authorization to create a system of
defined-contribution plans with individual accounts for military
members. The funds in these accounts should be used to pay private
health insurance premiums, deductibles, and out-of-pocket
medical expenses. As with the defined-contribution retirement
system, servicemembers, retirees, civilian government
employers, and private employers should be permitted to contribute
to these accounts. Eventually, all military dependents would be
covered under the FEHB system, and all new recruits would be in a
defined-contribution health care plan.
Today's Needs Versus Tomorrow's Military. In
recent years, spending on today's forces has tended to crowd out
investment in tomorrow's forces. The funding for operations and
support activities (the operations and maintenance account plus the
military personnel account) has taken an increasing share of
the overall Department of Defense (DOD) budget. Conversely,
spending on modernization (the research and development account
plus the procurement account) has received an increasingly smaller
share of the DOD budget. (See Chart 5.)
Specifically, operations and support activities absorb roughly
60 percent of DOD budget authority for the core program, not
including the FY 2009 request for supplemental appropriations.
Modernization activities absorb only a little over 35 percent.
By comparison, the two activities approached parity in the 1980s,
when operations and support absorbed slightly more than
The trend toward operations and support's 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 America's soldiers, sailors, airmen, and Marines
was held in check by a 24 percent reduction in manpower. However,
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. In fact, the planned increase in ground
forces is ahead of schedule.
Meanwhile, 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 2009 defense budget allocates $41.6 billion to providing
health care benefits to military personnel and their dependents.
The trend toward modernization's 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. An enduring
effect of the procurement holiday is the 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 than 70 percent of the
modernization budget. The core defense budget for FY 2009 would
still leave procurement at only slightly more than 60 percent.
(See Chart 6.) As a result, essential new weapons programs must be
stretched out, which increases unit costs, reduces the numbers of
new weapons available to the military, and prevents their timely
delivery. For example:
- Although Congress is seeking to remedy this problem, the Navy
has been forced to reduce construction of Virginia-class
submarines to one per year even though constructing two per year
would reduce the unit cost to $2 billion per boat.
- The Air Force has been forced to scale back its purchasing of
F-22 Raptor tactical fighters dramatically. 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 four years.
Prerequisites for Sustained Defense
Maintaining a healthy national defense program involves three
First, Congress must make a sustained commitment to
robust funding for national defense. This is axiomatic. A robust
defense program cannot be maintained without sustained funding.
Congress should therefore establish a floor of 4 percent of GDP for
national defense and firmly resist all attempts to go below this
floor for the next 10 years.
Second, Congress must reform Social Security, Medicare,
and Medicaid. In the long run, projected spending growth in these
three entitlement programs will make it impossible for
Congress to provide at least 4 percent of GDP to national
defense. Even in the short term, entitlements will make
allocating adequate resources to national defense
incrementally more difficult.
Third, Congress must spend the defense budget wisely.
This will require rebalancing the internal defense accounts to meet
long-term needs. Specifically, Congress should:
- Increase funding for the core defense programs if and when
supplemental appropriations to support ongoing contingency
- Shift resources from the operations and support accounts to the
modernization accounts, and
- Increase the share of the modernization accounts devoted to
What Congress Should Do
To close the growing gap between defense needs and defense
budget authority, Congress should address the external and internal
pressures on the defense budget in five broad areas.
Providing the Necessary Resources. Providing adequate
funding for national defense starts with recognizing that the Bush
Administration's five-year defense budget request falls short. The
Administration's budget from FY 2009 through FY 2013 would
create a roughly $532 billion defense funding gap between
budget authority in the core defense program and the
4-percent-of-GDP benchmark. (See Chart 7.)
To remedy this problem, Congress should:
- Close this gap by adding the necessary budget authority to
the five-year national defense account. The relevant defense
budget targets should be $600 billion for FY 2009 (not
including the Bush Administration's $70 billion
supplemental appropriations request); $632 billion for FY
2010; $664 billion for FY 2011; $696 billion for FY 2012; and $728
billion for FY 2013. These targets reflect the investments needed
to sustain the core defense program. They do not include
supplemental appropriations to fund ongoing operations in the war
against Islamic terrorists.
- Make a clear commitment to sustain adequate defense funding
beyond the five-year budget period. Congress can do this by
including report language that pledges Congress to allocate at
least 4 percent of GDP to the core national defense program for the
foreseeable future. Such a step would be a logical follow-on to
enacting either S.J. Res. 25 or H.J. Res. 67.
- Reform 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. Spending 4 percent
of GDP on national defense will quickly become impossible unless
Congress reforms Social Security, Medicare, and Medicaid.
Funding Major Combat Operations Separately. In
wartime, the military always faces the challenge of not letting the
requirements for current operations undermine its ability to field
first-rate forces in the future. The Bush Administration,
recognizing this dilemma, has responded by using supplemental
appropriations to fund ongoing operations in the war against
Islamic terrorists. This has appropriately served the purpose of
keeping these expenditures from crowding out investments in the
core defense program. If the costs of current operations were
incorporated into the annual defense budget, the temptation to rob
future military capabilities to fund current operations would
- Congress should continue to fund current contingency
operations through supplemental appropriations. The 4
percent benchmark is intended to protect the core defense program
and future defense capabilities. The spending goal therefore
assumes that supplemental appropriations will be in addition
to the 4 percent spent on the core program. This means that the
roughly $532 billion that Congress should add to the core defense
program during the five-year budget period would go exclusively to
the annual defense appropriations bill.
- Similarly, Congress and the Bush Administration should
resist the urge to fund elements of the core defense program out of
supplemental appropriations bills. Doing so would tie
enduring defense programs to a funding source that could
easily decline or disappear in the near future.
Rebalancing Military Compensation. Absent reform, future
increases in the per capita cost of military compensation will
crowd out needed spending on military modernization because the
overall size of the military is increasing. Ultimately, rebalancing
military compensation will require a number of significant
reforms. Ample evidence suggests that the current compensation
system is weighted too heavily in favor of in-kind and deferred
compensation over direct cash compensation.
To begin rebalancing military compensation, Congress should:
- Reform military retirement benefits as outlined in
various proposals to adjust 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 identical to the one applied to Social Security
benefits. The military retiree community is much smaller than the
population of Social Security recipients and has unique
- Phase in a new defined-contribution retirement program
over the next 10 years. The military should change from
its defined-benefit system to a defined-contribution program in
which the military would contribute to each servicemember's
retirement account. The plan should also permit the
servicemember and his or her civilian government and private
employers to make contributions. Finally, the plan should contain
an inter-generational element that allows the servicemember to
bequeath the assets in the account to the servicemember's heirs
upon his or her death without paying estate or death taxes. After
the 10-year transition period, all new military recruits
should be covered under this new retirement system.
- Move the military health care system away from a
defined-benefit plan and toward a defined-contribution plan.
While the DOD touts its $41.6 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.
The system is clearly one of the most generous and may be one of
the most inefficient. The military should seek congressional
authorization to move health care coverage for dependents to
the Federal Employees Health Benefits system on terms consistent
with what is available to federal civilian employees.
Increasing Military Modernization Funding. The Bush
Administration's FY 2009 budget request provides almost $184
billion to the modernization program in the core defense budget.
Modernization funding after FY 2009 is uncertain because the
Bush Administration did not provide budget authority figures
for modernization in the latter years of the budget period. This is
a cause for concern because of the $532 billion funding gap from FY
2009 through FY 2013 and the ongoing pleas from the service chiefs
for more modernization dollars.
- Congress should incrementally increase the Bush
Administration's military modernization funding request for FY
2009 and thereby establish the foundation for future increases.
Closing the gap in the proposed five-year defense budget would
leave sufficient room to reach the $200 billion target for
modernization in FY 2014. This kind of sustained funding for
modernization would provide the military with the new weapons
and equipment that it will need to be a fully capable force a
generation from today.
Increasing the Procurement Account's Share of Modernization
Spending. It is unclear whether or not the Bush
Administration's FY 2009 budget request for the core defense
program would rebalance the internal structure of the
modernization program, because the request does not specify
funding levels for these accounts beyond FY 2009. The $104.2
billion in FY 2009 budget authority for procurement
constitutes just under 57 percent of the entire modernization
- Congress should incrementally increase the Bush
Administration's procurement request for the core defense
program and resist all temptations to shift resources away from
procurement to research and development. It should sustain
this rebalancing action in future defense authorization and
appropriation bills by ensuring that procurement receives at least
60 percent of modernization budget. Closing the budget gap for the
core defense program in the latter years of the budget period
should provide sufficient room in the overall budget to
accommodate this goal.
The United States was founded on the basis of individual
liberty, and the Constitution assigns to the federal government the
primary responsibility to "provide for the common defence." In
this context, expending 4 percent of GDP in the defense of
freedom is entirely reasonable. Nevertheless, and despite the
ongoing war against terrorism, the federal government is now
allocating a smaller share of national income to defense than the
average for the past four decades.
Projected growth in entitlement spending, not defense spending,
is at the core of the looming fiscal crisis facing the federal
government. Current defense expenditures--or even spending
equivalent to 4 percent of GDP--will not jeopardize either the
health of the economy or the prosperity of the American people, but
a sustained commitment to defense is necessary to sustain
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.