Archive for February 24th, 2012

No Matter Republican or Democrat in the White House, More Military Budget Cuts are Coming

Charles Knight, commentary, 24 February 2012.

The Pentagon, the Obama administration, and many members of Congress hope that cuts to the defense budget stop with those mandated in the first stage caps of the 2011 Budget Control Act and made more specific in the President’s recently announced FY13 budget plan. As Reuters has reported the Obama FY13 budget shifts away from an austerity frame, partially adopted in 2012, to instead emphasize a program of higher taxes on the rich, a continuing tax cut for wage earners, and public investments in infrastructure, education and police services.

It is safe to predict that most all Republicans and some Democrats in Congress will join to block the President’s tax/revenue enhancement programs and domestic economic investments. The political stalemate on further deficit/debt reduction that followed passage of the BCA last year will remain in place through the remainder of 2012.

Even if we assume that after this year’s election Congress will find a way to avoid the particulars in the so-called “sequester” (second-stage) provision of the 2011 Budget Control Act, the pressure for deeper cuts will remain.

To see why the pressure for more defense cuts will continue into next year we need look no further than a new report from the Committee for a Responsible Federal Budget called Primary Numbers: The GOP Candidates and the National Debt. Their analysis shows that in 2021 the fiscal plans the GOP candidates will yield the following national debt levels as percentages of GDP:

    Gingrich – 114%
    Santorum – 104%
    Romney – 86%
    Paul – 76%

By odd coincidence Ron Paul’s plan and President Obama’s plan both end up at a debt level of 76% of GDP in 2021. Of course, the two plans get there by very different mechanisms. Obama’s plan relies substantially on increased revenue (including tax increases) and Paul’s mostly on spending cuts, including deeper cuts in the defense budget.

What makes the Pentagon budget vulnerable after the election is that the centrist Democratic president and the libertarian Republican candidate have positioned themselves as the most fiscally conservative, while the leading Republican contenders are looking like spend and don’t tax radicals.

Gingrich grabs for the mantel of Reagonomic fiscal policy by favoring an increase of national debt to 114% of GDP. Santorum is a close second at 104% of GDP. By comparison, Romney appears moderate at 86% of GDP, 13% higher than Obama or Paul. Romney is in favor of increasing military spending.

The problem for the Pentagon is that both Obama’s and Romney’s plans are politically unrealistic and very unlikely to be implemented. Obama keeps the debt low largely through tax increases — which will not happen if Congress remains controlled by Republicans. A failure to raise new revenues will be critical. If the Administration were able to get higher taxes on the rich it would facilitate holding DoD cuts to the level of the FY13 plan. Failure to achieve these tax increases will mean two things: 1) it will be much harder to get a domestic investment program (even if the Democrats do better than expected in November) and 2) the attractiveness to a significant portion of liberals and conservatives of additional DoD cuts will continue.

Romney, on the other hand, plans to keep taxes low and increases defense spending — therefore his fiscal plan depends on deeper cuts in domestic spending and substantial cuts to entitlements. Given that domestic spending has been cut to the bone in most accounts and entitlement programs have survived all conservative assaults to date, Romney’s plan seems equally unlikely. For more on the limits of the Romney plan see Ezra Klein here.

So there is every reason to believe that after this year’s election powerful fiscal conservatives who can see beyond the partisan nonsense will look hard again at the Pentagon’s budget to find things to cut. This condition means that the nation will remain open to strategic adjustment for some years to come.

Debt and GOP Candidates' Fiscal Plans

Projected National Debt from GOP Candidates' Fiscal Plans