President’s Half-Trillion Dollar Jobs Plan Muddies the Defense Budget Waters
Most of the proposals were not surprising — some revenue increases in the form of tax reforms (billionaires and millionaires were mentioned), education spending, and infrastructure investments in bridges, roads, schools and airports. He also took a stab at regulatory reform, tax credits and a continuation of existing payroll tax cuts, extension of unemployment insurance, and a mortgage refinancing plan of some sort. He warned against cuts to Medicare and Medicaid. Interestingly, he also announced that he would be releasing a more ambitious deficit reduction plan.
The one surprise of this estimated $447 billion jobs plan was that it “will be paid for.” Presumably Congress will have to act to include an additional $447 billion of deficit reduction to the $1.5 trillion that the 12-member “super committee” must come up with by Nov. 23. Alternatively, one supposes, the super committee could come up with this amount without being legislated to do so.
The additional sum to “pay” for the jobs bill is another “brick” added to the already overloaded hog trough for discretionary spending, of which defense is fully half.
Just before the president’s speech, the Senate Appropriations Committee put out guidance on defense spending for 2012. Recall that the 2011 continuing resolution gave $531 billion to the defense base budget. The $526 billion in the defense base budget for 2012 is in line with the 2012 amount in the Budget Control Act of 2011. So we see consistency developing here.
What one wonders though is how the new requirement to “pay for” the Jobs Bill will affect defense spending. Analysts have estimated that the defense budget base could settle in around $482 billion. Several experts agree with this estimate as a minimum level. McAleese and Associates calculates minimum cuts at $35 billion to $47 billion per year — agreeing roughly with the $482 billion above. But McAleese also estimates the worst-case scenario could be cuts of $85 billion to $104 billion per year, making the base budget come in around $430 billion per year.
It is worth noting that the vice chiefs of the military services in testimony to Congress have warned that cuts greater than the $35 billion per year that the Defense Department already must absorb in its five-year funding plans is the maximum they can handle without major strategy and force structure adjustments.
The work of the super committee and the trigger mechanism in the Budget Control Act have the potential to override anything the Congress is doing. But one wonders whether there is some consultation already under way on the early years of the defense budget so that a soft landing can be managed.
Also, the positions of the super committee members are already beginning to harden, presaging a tough fight to get to an agreement. The co-chairs are already on record after the first meeting Sept. 8. The co-chair, Sen. Patty Murray, D-Wash., said the panel is not starting from scratch, and is building on work from both sides of the aisle. Other members echoed this notion, specifically mentioning the work of the Simpson-Bowles Deficit Reduction Commission. Co-chair Rep. Jeb Hensarling, R-Texas, opined that he agrees with the president that long-term liabilities are driven by healthcare spending. And others supported this by referencing the need to address entitlement programs. Rep. James Clyburn, D-S.C., said the United States needs to cut back on “military adventurism.” Arizona’s GOP Sen. Jon Kyl has drawn his line in the sand, and said, “I’m off the committee if we’re going to talk about further defense spending.”
How to make some sense of all this? Not easy. Several things are clear at this point. First, there are many moving parts. Second, there is a clear consensus on both sides of the aisle that some action is needed on the deficit, and on defense priorities Third, the president’s mandate to find another $447 billion of deficit reduction has added to the burden and uncertainty. Fourth, there will be some attention paid to previous work on deficit reduction, and this all will happen very fast. Public hearings will be held from Sept. 16 through Nov. 23. The House and Senate must have their comments and recommendations to the super committee by Oct. 14. The panel must vote on the reductions and recommendations by Nov. 23 and send the legislation to congressional leaders by Dec. 2. It must go forward to the floor by Dec. 9 and voted on without amendment by Dec. 23.
The Oct. 14 deadline is key to understanding the issues involved.
Cuts of $35 billion to $40 billion per year can be managed by the services, though it will entail many unpleasant adjustments to programs. Base budgets of $525 billion in 2012 and 2013 will help toward a soft landing. The big unknown is the balance between the various accounts. The U.S. military has always relied on technological superiority in systems and training to prevail on the battlefield. It will be essential to protect key modernization investments and personnel accounts to provide a vector for the future that can sustain this edge.