On May 7, 2009, the Obama Administration submitted its
defense budget plan for fiscal year (FY) 2010. However, the plan
provides insufficient resources for the core defense program (not
including funding for overseas contingency operations) and raises
serious questions about whether it is committing the U.S. to a path
that would leave the Department of Defense unable to purchase
sufficient weapons and equipment for the military. The request
allocates $562.8 billion to the core defense program. This
constitutes 3.8 percent of gross domestic product (GDP) in FY
2010, based on the Administration's own GDP forecast. The
funding for the core defense budget is slated to increase by an
average of around $10 billion (nominal dollars) per year from FY
2011 through FY 2014, which is no growth in real terms. As a
result, the core defense budget will fall to less than 3.3 percent
of GDP in 2014.
Fighting and winning 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 (for example, Iran and North Korea) and potential threats,
such as the one posed by a hostile China. The FY 2010 budget
request fails to provide adequate funding for the basic building
blocks in the core defense program, which are needed to
protect the national security over the long term.
Regrettably, Congress has already approved a budget resolution
that generally agrees with the Obama Administration's
request. Clearly, Congress needs to change course.
It should do so by making a firm commitment to fund the core
defense program at no less than 4 percent of GDP for the next 10
years. Senator James Inhofe (R- OK) and Representative Trent Franks
(R-AZ) have introduced companion bills (S.J. Res. 10 and H.J. Res.
23) that would make such a commitment. This commitment would
require Congress to add $26.4 billion in budget authority to
the core defense budget in FY 2010 and a total of about $397.4
billion over the five years from FY 2010 through FY 2014.
The larger core defense budget would go toward maintaining the
building blocks to support a comprehensive defense posture, 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
The Administration's FY 2010 Defense
The Obama Administration's budget request for FY 2010 through FY
2014 reflects the continuing presence of a number of external
and internal pressures on the defense budget. The external
pressures are exerted by the rapid projected growth in spending for
Social Security, Medicare, and Medicaid and any additional
retirement and health care entitlements that Congress may add to
the existing programs. If the future growth in entitlement
spending is not limited, it will crowd out needed defense
The internal defense budget pressures are primarily the
results 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
Despite the ongoing wars, the defense account is continuing to
lose ground in the total federal budget to domestic mandatory
spending programs (for example, Social Security, Medicare, and
Medicaid). The FY 2009 budget request would continue this trend
through the entire five-year budget period.
External Budget Pressures. Social Security, Medicare, and
Medicaid spending has absorbed ever-larger portions of the federal
budget since the 1960s. (See Chart 1.) 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 2.)
Outlays for Social Security, Medicare, and Medicaid for the
current fiscal year are projected to total 10 percent of GDP. By
comparison, the proposed defense benchmark (4 percent of GDP) is
only 40 percent of total spending on the three major
The implications for national defense are clear. Spending 4
percent of GDP on national defense will quickly become impossible
unless Congress moves to limit the future growth of Social
Security, Medicare, and Medicaid. Some Members of Congress
will likely argue that any spending limitation on these programs is
tantamount to a draconian cut, but it is nothing of the sort. It is
really a matter of limiting further growth.
Given the size of the Social Security, Medicare, and Medicaid
programs, proposals to limit future spending will take time to
implement. Thus, Congress should start now.
Internal Budget Pressures. The military faces a variety
of internal budget pressures ranging from increasing personnel
costs to the imbalance between the modernization account and the
operations and support accounts.
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 limiting the spiraling increases in
manpower costs. (See Chart 3.)
While offering a generous compensation package will meet
recruitment needs, a well-designed package would focus on
compensating military personnel in ways that meet their needs most
directly. This tailored and more affordable approach would also
ensure that taxpayers receive 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 by
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 use their compensation in the ways that best meet their
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 his or her employers--civilian
government and private sector--to contribute. 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 to consume it at whim rather than according to
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 on service members and their dependents who
use the system's resources.
Pentagon leaders should seek congressional authorization to move
health care coverage for military 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 a decreasing share of
the DOD budget. (See Chart 4.)
Specifically, operations and support activities will absorb
roughly 60 percent of DOD budget authority for the core program in
FY 2010, not including funding for overseas contingencies
operations. Modernization activities absorb somewhat less than
35 percent. By comparison, the two activities approached parity in
the 1980s, when operations and support absorbed slightly more
The trend of operations and support receiving larger shares
of the core defense budget is driven largely by the increasing
per capita compensation costs 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 of the ongoing steps to increase personnel levels
in the ground forces.
Meanwhile, per capita military compensation costs continue to
rise, more than doubling in the past 10 years. (See Chart 3.) A
major contributing factor is the cost of military health care. The
FY 2010 defense budget allocates more than $47 billion to
providing health care benefits to military personnel and their
The trend of the modernization accounts receiving smaller
shares of the core defense budget began with the Clinton
Administration's "procurement holiday" in the 1990s. The
procurement holiday left an enduring imbalance between the
procurement account (the account for purchasing new weapons and
equipment) and the account for research and development of new
weapons and equipment technology. The Obama Administration's
defense budget would exacerbate the problem.
In the 1980s, procurement consumed more than 70 percent of
the modernization budget. The total defense budget for FY 2010
would still leave procurement at slightly more than 60 percent.
(See Chart 5.) As a result, procurement of 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, the Obama
- Capping purchases of the F-22 Raptor tactical fighter at 187
- Abandoning the existing plan to procure the Future Combat
Systems for the Army.
- Delaying acquisition of the Navy's next-generation cruiser.
The Criticisms of Increasing Defense
A variety of arguments are being made against increasing funding
for the core U.S. defense program. Most are derived from a
foreign policy position that would have the U.S. play a
diminished role in world affairs. Nevertheless, the direct
arguments in favor of shrinking the defense budget should still be
dismissed for their lack of merit. These arguments
Argument #1: The U.S. spends more on defense than the next 14
Comparisons with other countries on defense spending can be
subjective. Former Massachusetts Governor Mitt Romney (R)
described the difficulty in a national security speech on June 1,
The argument is also made that our defense spending is grossly
disproportionate to that of either China or Russia. In 2007,
China's defense budget was reported to be $45 billion, about
one-tenth our own. But we need to look more closely at the numbers.
China, for instance, doesn't include in its budget the cost of
strategic defense, research and development, or procurement
from other countries. When those are added in, you get a
budget in the range of $100 billion to $140 billion, and if those
figures are adjusted for Purchasing Power Parity, the amount
continues to climb.
But even then we're not finished. Think about it: A soldier
costs China a fraction of what it costs us. China spends about $25
billion for troops, while we spend $129 billion for ours, and
yet they have one-third more soldiers than we do. That kind of
disparity also holds true for the cost of building submarines,
artillery pieces, tanks, and other military platforms. Taking into
account the difference in costs, our advantage over the Russians
and Chinese is not 10 to one; it's more like two to one. They are
closer to half our level than they are to one-tenth.
Argument #2: U.S. weapons are far
superior to those of any other nation.
This argument is true today, but inadequate defense budgets will
necessarily shrink this lead. Many U.S. combat systems are aging.
According to former Senator Jim Talent (R-MO), the Air Force's
entire inventory of aircraft now averages 25 years of age.
This is about three times the age of the inventory during the
Further, Congress needs to pay attention to the fact that
qualitative superiority serves the nation's security. War is not a
spectator sport in which evenly matched opponents are sought to
provide exciting contests. U.S. security policy should never
subscribe to the notion that the nation seeks an even competition
with its enemies. As former Secretary of Defense William Cohen
famously stated when he was attempting to restore funding to the
procurement account in the late 1990s, "I've said many times
before we never want to engage in a fair fight. We want to be
unfair in our favor, so that's why we want to keep our military the
best in the world."
Argument #3: The U.S. can easily
handle the potential threats posed by a China or Russia that turns
This argument is not true because both China and Russia are
examining asymmetrical military capabilities that will exploit U.S.
vulnerabilities that will persist in the absence of modernization
programs. For example, China is seeking anti-satellite weapons
to exploit the vulnerability of U.S. military satellites. To lessen
this vulnerability, the U.S. will need to invest in systems that
permit the military to monitor what is going on in space (space
situational awareness), build new more responsive military space
systems, and build defensive and offensive counterspace
Evidence also indicates that both the Chinese and the Russians
are perfecting systems and plans for conducting cyberwarfare
against the United States. The U.S. military will need to acquire
computer systems that are more resistant to cyber attacks.
These acquisitions will require a commitment to funding.
Argument #4: The cuts to the U.S.
military procurement budget have been modest.
This argument is simply inaccurate. During the procurement
holiday of the 1990s, the procurement budget was reduced by almost
two-thirds in inflation-adjusted dollars from the level in the
mid-1980s. The 2008 procurement funding level was still 38 percent
below the level of the mid-1980s.
Argument #5: Secretary of Defense
Robert Gates is focused on acquiring modern weapons.
This is true in only a narrow area of military capabilities.
Secretary Gates believes that the wars of the future will have the
same characteristics as the wars the U.S. is fighting today. Thus,
he is focusing the military's modernization effort on the
counterterrorism and counterinsurgency missions. This narrow
focus will not serve U.S. security interests.
Tomorrow's wars will likely have characteristics that differ
sharply from today's wars. Consequently, the U.S. needs to maintain
the basic building blocks of a broad-based military capability that
can respond to new and unexpected threats, as well as to the
threats that the U.S. faces today. This will require a
similarly broad-based modernization effort.
Argument #6: Historical comparisons
with today's defense budget are inappropriate because the U.S. no
longer faces the Soviet Union's war machine.
While the Soviet war machine no longer exists, the end of the
Cold War did not suddenly make the world a benign place. In fact,
the pace of U.S. military operations is higher today than it
was during the Cold War. The U.S. has fought three major
conflicts (Operations Desert Storm, Enduring Freedom, and
Iraqi Freedom) since the end of the Cold War. Two of them are
ongoing, and more than 180,000 U.S. military personnel are deployed
to combat zones today. The current operations in particular have
required quite large supplemental appropriations bills. The
nature of the military challenges the U.S. faces today are
different, but that does not mean that the challenges are less
important or that meeting them is less costly. The historical
comparisons remain valid.
Prerequisites for Sustained Defense
Maintaining a healthy national defense program involves three
prerequisites. Congress needs to:
- 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.
- Move to limit future growth in spending on 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
- 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, increase the overall defense budget in a way that permits
sufficient growth in 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 needs to address the external and
internal pressures on the defense budget in five broad areas.
Providing the Necessary Resources. Providing adequate
funding for national defense begins with recognizing that the Obama
Administration's five-year defense budget request falls short. The
Administration's budget for FY 2010 through FY 2014 would
create a roughly $400 billion defense funding gap between
budget authority in the core defense program and the benchmark of 4
percent of GDP. (See Chart 6.)
To remedy this problem, Congress should:
- Close this gap by adding the necessary budget authority to
the five-year national defense account. The appropriate defense
budget target should have been $589.2 billion for FY 2010. Since
Congress has already adopted a budget resolution that will
provide only $562 billion in the core defense program in FY 2010,
Congress will need to make up ground over the remaining four years.
Specifically, the defense budget target should be $620 billion for
FY 2011, $658.8 billion for FY 2012, $699.9 billion for FY
2013, and $735.5 billion for FY 2014. These targets reflect the
investments needed to sustain the core defense program. They do not
include the separate funds that the Obama Administration will
request for overseas contingency operations. However, Congress
could go some distance toward reducing the shortfall by
incorporating the funding for operations in Afghanistan and Iraq
into the core defense program and thus raising the overall
spending level, unless President Obama's new plan for expanded
operations in Afghanistan constitutes a new operation that
justifies continued supplemental appropriations.
- Make a clear commitment to sustain adequate defense funding
beyond the five-year budget period. Congress can do this by
including report language associated with the FY 2010 defense
authorization bill in which Congress pledges to allocate at least 4
percent of GDP to the core national defense program for the
foreseeable future. This would be an appropriate interim step until
Congress enacts a law along these lines, such as S.J. Res. 10 or
H.J. Res. 23.
Limiting Future Growth in Entitlement Spending. Social
Security, Medicare, and Medicaid spending has absorbed ever-larger
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
limits future entitlement spending. Specifically, Congress
- Limit spending on Social Security, Medicare, and
Medicaid in a way that limits overall federal expenditures to
20 percent of GDP, including 4 percent of GDP for defense.
- Resist the temptation to enact new retirement and health
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 formula 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 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 intergenerational 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
- Move the military health care system away from a
defined-benefit plan and toward a defined-contribution
plan. While the DOD touts its $47 billion health care system as
providing high quality care, this claim is far from obvious.
The system is clearly one of the most generous, but may be one of
the most inefficient. The military should seek congressional
authorization to move health care coverage for military dependents
to the Federal Employees Health Benefits system on terms
consistent with what is 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 medicine.
Increasing Military Modernization Funding. The Obama
Administration's FY 2010 budget request provides $186 billion to
the modernization program in the core defense budget.
Modernization funding after FY 2010 is uncertain because the
Obama Administration did not provide budget authority figures for
modernization in the latter years of the budget period. This is a
cause for concern because the almost 6 percent increase in
operations and support accounts from FY 2009 to FY 2010 could
be continued beyond 2010. Under the Administration's inadequate
defense budget numbers, modernization funding could drop to less
than 25 percent of the total core defense budget by FY 2014,
assuming the overall percent of the core defense budget
devoted to the smaller accounts, such as military construction,
family housing, and the Department of Energy, remain about where
they are today.
- Congress should close the gap in the proposed five-year
defense budget. Spending 4 percent of GDP on defense would
leave sufficient room to reach a $200 billion target for
modernization in FY 2014. This kind of future 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. The Obama Administration's FY 2010 budget
request for the core defense program is unclear about whether it
would rebalance the internal structure of the modernization
program. The request does not specify funding levels for these
accounts beyond FY 2010. The $107.4 billion in FY 2009 budget
authority for procurement constitutes just under 58 percent of
the entire modernization program, but this is partially the result
of the Administration's decision to reduce funding for research and
development in FY 2010 below the FY 2009 level.
Accordingly, Congress should:
- Incrementally increase the Obama Administration's
procurement request for the core defense program and resist all
temptations to shift resources away from procurement. It should
sustain this rebalancing action in future defense
authorization and appropriation bills.
- Ensure that procurement receives at least 60 percent of
the increased 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 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.
Projected growth in entitlement spending, not defense spending,
remains at the core of the loomingfiscal crisis facing the federal
government. Current defense expenditures--even spending 4 percent
of GDP on defense--will not jeopardize either the health of the
economy or the prosperity of the American people.
Paying 4 percent of the economy for defense is worth the price.
Indeed, if the United States fails to invest adequately in defense,
it will pay a price in currency that is far more valuable than
money. It will jeopardize the freedom, safety, and security of its
people and its standing in the world.
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