FPI Bulletin: Defense Spending Does Not Drive the Deficit

February 18, 2015

At a recent hearing of the Senate Armed Services Committee, Senator Angus King (I-ME) observed: “The growth in the budget right now is in mandatory programs, and particularly in health care costs: Medicare, Medicaid, Children's Health Program. That's what's driving the federal deficit. It's not defense.” The point should be obvious, but deserves to be much more widely understood: defense spending is not the driver of either annual budget deficits or the national debt.

This point is especially important to keep in mind as the President and Congress debate whether to allow full sequestration of the defense budget in fiscal year 2016. Because of how the Budget Control Act of 2011 was written, sequestration reinforces the mistaken belief that defense spending is a major part of the problem. Fully half of the cuts mandated by sequestration fall on the U.S. military, while entitlements and other mandatory programs remain almost untouched.

As a result, the military’s share of the federal budget is falling sharply, while entitlement growth continues to surge. In fiscal year 2014, defense spending accounted for just 17 percent of the federal budget.  Five years from now, that share will fall to 12.2 percent, according to White House projections. By comparison, defense accounted for 27 percent of the budget during President Reagan’s last year in office; in the 1950s and 1960s, the figure ranged from 40 to 60 percent.

In contrast, entitlement spending consumes a rapidly growing share of the budget. Forty years ago, Medicare and Medicaid accounted for 6 percent of Federal spending. Last year, they accounted for 24 percent. Social Security accounted for another 24 percent of government outlays. As illustrated in the following chart, the cost of these three major entitlements is expected to grow to 53 percent of the budget in just ten years’ time.

Figure 1: Spending by Category as a Percentage of the Federal Budget

Data: Congressional Budget Office (CBO)

Entitlement spending will grow because senior citizens comprise a growing share of the American population. In addition, the cost of healthcare tends to grow significantly faster than the rate of inflation. Thus, most of the cost growth will be in Medicare and Medicaid, although Social Security will also consume its greatest share ever of the Federal budget.

The only reason major entitlements won’t claim an even greater percentage of the budget is that interest payments on the debt will grow even faster. Today, interest rates are extremely low. As they recover, the cost of servicing the national debt will rise dramatically. This year, the U.S. government will pay $227 billion of interest, or 6.2 percent of the budget. Five years from now, the CBO projects that the government will have to pay $548 billion, or 11.5 percent of the budget. In ten years, those numbers will be $827 billion and 13.5 percent, significantly more than the entire defense budget. Together, interest payments and major entitlement spending will consume just under two-thirds of the budget.

These projections assume that voters and elected officials will tolerate massive deficits, amounting to almost $1 trillion per year. When the government ran trillion-dollar deficits during President Obama’s first years in office, however, there was a powerful backlash, resulting in the Budget Control Act of 2011, which led to sequestration. Rather than confronting the real causes of spending growth, sequestration punishes the military, forcing it to absorb half of the necessary cuts even though it accounts for less than one-fifth of the budget.

Three years ago, when the President declared that “the tide of war is receding”, this deprivation of the armed forces may have seemed tolerable. Yet the rise of ISIS and the Russian invasion of Ukraine have reminded America that threats may appear at anytime, so the military must always be prepared. However, if Congress and the President do not act, entitlement spending and interest payments will make it impossible to support the Armed Forces – or any other national priority – without incurring debts that may destabilize the whole U.S. economy.

Therefore, it is urgent that Congress and the President act now: sequestration was designed to cripple our military without controlling long-term debt.  It is a recipe for disaster.

 

Sources:

For total Federal spending since 1965, see Table G-1 on page 158 of the CBO’s “The Budget and Economic Outlook: 2015 to 2015”. For defense spending, see Table G-4 on page 164. For entitlement spending, see Table G-5 on page 166.

For projections of future spending and deficits, including interest payments, see Tables 1-1, 1-2 and 1-3 in the CBO spreadsheet “January 2015 Baseline”.

For defense spending before 1974, see Historical Table 6.1 on the website of the White House Office of Management and Budget (OMB).

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The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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