America's Fiscal Constitution (63 page)

In short, a constitutional amendment requiring a supermajority vote for debt is no substitute for the budget practices that helped impose discipline in the past: clear accounting, “pay as you go” budget planning, separate budgeting for trust funds, and explicit congressional authorization of the purpose and amount of each new debt.

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B
UDGETS CAN BE BALANCED
at various levels of spending and taxation. Traditional limits on debt have never dictated the relative priority of various categories of spending or the mix of taxes levied to balance the budget. As described in the next two chapters, in the foreseeable future the budget cannot be balanced until the United States aligns the levels of spending with tax revenue available for the two largest components of the federal funds spending: national security and medical services.

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B
ALANCING THE
N
ATIONAL
S
ECURITY
B
UDGET

T
HE
C
OST OF
G
LOBAL
M
ILITARY
L
EADERSHIP

The American Fiscal Tradition helped preserve the debt capacity needed to wage wars. Limits on borrowing also forced generations of federal leaders to carefully weigh the cost of international commitments.

Since the end of World War II, steady annual investments in military and intelligence capabilities have supported America’s exceptional international leadership. In the early 1970s President Nixon sought to relax tensions with the Soviet Union in part based on his belief that Americans could not indefinitely bear Cold War sacrifices. Nixon correctly anticipated the diminishing public tolerance for Cold War tax rates. Federal revenues were insufficient to fund the new phase in that Cold War that began in 1979, following a Soviet buildup in nuclear missiles and invasion of Afghanistan.

The United States maintained a global security umbrella even after the collapse of the Soviet threat. The US-led liberation of Kuwait in 1991 and intervention in the Balkans in 1999 demonstrated the singular role of American military strength in the international order that emerged from the Cold War.

The War on Terror beginning in 2001 represented a costly new chapter in the history of US military spending. Its full budgetary implications unfolded over several fiscal years. Since the end of the Korean War, base military spending—apart from direct war costs and expressed in inflation-adjusted dollars—had remained in a fairly stable band. By 2005 the base defense
budget burst through its historical upper range. If Osama Bin Laden’s goal was to saddle American families with massive debt, he certainly succeeded.

Public debate over Pentagon budgets after 2000 tended to focus on the strategy and conduct of the two ongoing wars. Once US forces in Afghanistan and Iraq broke the grip of repressive regimes, they remained there to prevent chaos before new governments took root. After 2000 the United States also invested more in mobile forces that could respond effectively against terrorist groups and rogue nations. Since counterterrorism does not end with a climactic battle, the capacity to make steady annual investments in preparedness and new technologies is critical. The Bush administration never addressed the inherent conflict between that prolonged need for spending and its use of unsustainable annual borrowing to finance its military buildup.

The use of debt to pay for post-2000 military commitments made it inevitable that either future base military budgets would come down or future taxes would go up. Through 2013 the direct military costs of the wars in Afghanistan and Iraq exceeded $1.5 trillion.
¹
Medical costs of discharged active duty and retired combat veterans also continued to increase. Those costs, plus the compound interest on war-related debt, raised total debt associated with those wars to more than $2 trillion, almost $20,000 per American household. After 2020 annual interest on debts related to the wars in Iraq and Afghanistan might surpass the peak annual spending for the wars themselves.

A rough bipartisan consensus on military spending had emerged in support of the Department of Defense 2012 Future Years Defense Program, which envisioned military spending as a smaller share of national income than it had been from 2003 to 2010. Even that level of defense outlays soon seemed unaffordable when Baby Boomers began to be eligible for Medicare and interest rates proceeded to rise.

The Budget Control Act of 2011 limited the growth in the base Pentagon expenditures to levels well below those proposed for the Future Years Defense Program. The top line of
Chart 4
shows the Congressional Budget Office’s estimate of the cost of the 2012 Future Years Defense Program, and the bottom line shows spending after the effect of the Budget Control Act’s sequesters.
²

The Budget Control Act of 2011 mandated spending cuts of about $52 billion annually—or 10 percent—from the Future Years Defense Program.
³
That difference—depicted as the gap between the top and bottom lines—represents a significant loss in military capabilities. That reduction in spending occurred without any serious debate over whether and how to scale back US international commitments.

Chart 4:
   
Costs of DoD’s Plans in the Context of the Budget Control Act (BCA)

Source:
CBO,
Long Term Implications of the Future Years Defense Program
(July 2012)

A
LTERNATIVE
L
EVELS OF
D
EFENSE
S
PENDING

Four different scenarios illustrate alternative approaches for matching defense spending with Pentagon missions. The approximate cost of each, expressed as a share of national income, excludes security-related outlays for veterans and homeland security.

Alternative 1: Border Defense with Some Capacity for Retaliation

This alternative requires the armed services to sharply reduce the number of uniformed personnel, as well as naval and land-based international
deployments. Technological investments would be designed to maintain a defined capacity for airborne retaliation rather than the ability to occupy foreign soil. This alternative would cost less than 2 percent of national income. It would be consistent with a foreign policy outside the current mainstream.

Alternative 2: National Defense

This alternative accomplishes more than basic border security but provides less than the capacity for combat in more than one region at a time or for occupation of a large territory. It would entail significant cuts in the current planned levels of procurement and personnel. A purely “national defense” alternative would, for example, reduce the deployment of a new generation of tactical aircraft and decrease the number of existing naval carrier task forces.
⁴
The United States would have to concentrate most of its military forces to engage in major combat operations. This defense posture could cost less than 3 percent of national income.

Alternative 3: The Current Consensus

This alternative is consistent with the 2012 Future Years Defense Program. The United States would retain the ability to rapidly deploy overwhelming force in a major regional war. South Korea, Taiwan, Israel, and the Persian Gulf would all remain in the US security perimeter. This alternative costs more—in inflation-adjusted dollars—than it did in 2000 because expenses for items such as health benefits and fuel have risen faster than inflation. This alternative allows the United States to intervene on the ground to counter a hostile nation’s development of nuclear weapons. This alternative costs between 3 and 4 percent of national income.

Alternative 4: A Military Capable of Interventions to Replace Hostile Regimes

This alternative reflects the continuation of the type of base defense budget in place from 2003 to 2012. Spending on this scale would support a foreign policy that retains the option of sustained combat in nations such as Iran, Pakistan, or Syria. This alternative costs about 4 to 5 percent of national income. Like Alternative 1, this alternative lacks broad-based public support. It could be funded only by imposing much higher taxes.

The estimated cost for each of the four preceding alternatives should be adjusted upward to account for other defense-related outlays. For the remaining lives of the veterans of Vietnam, Iraq, and Afghanistan, it would be reasonable to estimate that spending for veterans—contained in the budgets of the Veterans Administration and various other federal departments—will consume at least 0.5 percent of national income. Adding that amount to the bottom limit of the current consensus—Alternative 3 above—yields an estimated cost of at least 3.5 percent of national income. That share of national income for defense and veterans is near the post–World War II low. Homeland security and other costs of national security, intelligence, cyberdefense, and aid to allies in the budgets of the State Department and other agencies will amount to another one-half to 1 percent of national income.

Many long-term forecasts—including those produced by the White House and CBO—envision that the Pentagon budget will decline to less than 3 percent of national income by 2020. That assumption may be overly optimistic so long as the United States continues to accept its unique leadership role in international affairs. The cost per soldier for maintaining a high level of operational readiness has consistently grown faster than national income. New weapons, cyberthreats, and greater global mobility all pose risks that may justify steady annual investments in defense. Technological superiority is expensive. Paradoxically, those costs may rise when more potent weapons become more accessible at lower costs to potential adversaries. From 1999 to 2001, defense spending did decline to 3 percent of national income, but that occurred in large part because of the sharp drop in activities related to nuclear weapons developed for the Cold War. There appears to be nothing similar on the horizon.

T
AX
R
EVENUES TO
S
USTAIN THE
“C
ONSENSUS
”

The American Fiscal Tradition once forced the United States to explicitly weigh its commitments to allies against their cost in taxes. Today the level of commitments that taxpayers are willing to fund is, at best, unclear. An unusual partisan alignment has complicated the formation of a new national consensus on that trade-off. The Republican coalition in recent years includes both voters attracted to the vision of smaller government and culturally conservative voters who support an exceptional—albeit costly—American role in international affairs. Most Republican leaders
in Washington have used debt to bridge the gap between conflicting demands for a high level of military spending and a low level of taxes.