How will the National Commission on Fiscal Responsibility and Reform balance the budget in 2015?

Editor’s Commentary

There are at least as many reasons to think that significant real reductions in defense spending will be hard to achieve as there are reasons to doubt that significant revenue increases will be found or that substantial reductions in entitlement spending will happen. “Political realities” are indeed daunting for any of the options the National Commission on Fiscal Responsibility and Reform will consider. If there were quick, easy and obvious decisions to be had there would be no need for the Commission.

Political realities change over time in part because underlying realities eventually change political calculation. Such is the case with defense spending. After more than a decade of rapid growth there is likely to be some retrenchment in the middle of this decade, notably by 2015.

The likely path of defense spending this decade was recently forecast by the high-tech industry association Tech America Foundation in their DoD Topline Forecast 2011-2020.

Tech America’s forecast is for a real reduction in the base Pentagon budget (not including Overseas Contingency Operation war supplemental funding) of 9% or $45 billion (USD 2011) in 2015 relative to the 2011 base budget.

When taking into account the Pentagon’s preferred budget path this decade of at least 1% real annual growth, Tech America forecasts a reduction in defense spending by 2015 of 16%.

Tech America’s forecast of Overseas Contingency Operation (OCO) war supplemental spending during the decade is also important to consider. Since FY10 (President Obama’s first budget) there has been an OCO war supplemental DoD budget line for FY12-FY15 of $50 billion per year. The OCO war supplemental in the FY11 budget is $159 billion.

Although the actual OCO war supplemental might come down in FY12, with the military operational demands in Afghanistan remaining elevated it is unlikely the OCO war supplemental will come down even $50 billion, let alone $109 billion in FY12. Tech America forecasts OCO war expenditures of $122 billion in FY12.

These likely under-budgeted OCO war supplemental costs should be counted as probable additions to the national debt beyond those already projected by the government.

Tech America’s forecast is for the OCO supplemental to be $122 billion in FY12, $102 billion in FY13, $69 billion in FY14 and $57 billion in FY15. That adds up to $150 billion more than is budgeted in the Five Year Defense Plan… an un-budgeted addition to the national debt.

For the target year of the federal budget reaching “primary balance” in FY15, the forecast OCO war supplemental will add $7 billion to the problem that the National Commission on Fiscal Responsibility and Reform faces in attempting to balance the budget in that year.

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