The Debt Deal and the Alleged Defense Cuts

I am tempted to comment on the political process that finally resulted in a debt ceiling deal this week, but there is just too much crazy to come up with a coherent observation. Instead I’ll note what Walter Russell Mead said to me on Twitter yesterday (one of my favorite pastimes is to tweet strangers with random comments). In his book Special Providence from 2001, Mead argued that it might be “the very sluggishness and unresponsiveness” of the American political system that has made the United States into a superpower and kept it there for so long. I asked him if this still applies. His response: “no default so the system still works, and still works badly.”

I guess he’s right, but I am still worried about the sustainability of the debt ceiling deal. To counter the narrative of a horrible deal being done, Democrats have been quick to point out that they got something out of the Republicans—defense cuts. This is only partially true. Here is the basic layout of the deal in regards to defense spending:

  • Defense spending will be lobbed in under ‘security’ along with the Department of State, Department of Veterans Affairs, Department of Homeland Security, foreign aid, the National Nuclear Security Administration, and the intelligence community management account.
  • This ‘security’ spending will be capped at $684 billion for this fiscal year and $686 billion for the next. As Benjamin Friedman at Cato points out, this only guarantees less than $10 billion in cuts.
  • If the Super Congress doesn’t agree on further spending cuts, this will trigger an automatic cut of roughly $600 billion to ‘security’ spending over nine years (the formula is complicated, according to Russell Rumbaugh). This is no guarantee that defense spending will be cut, and it is not unlikely that State and DHS will absorb most of the cuts.
  • The White House is claiming $350 billion in savings from the base defense budget, but as Christopher Preble at Cato points out, this number is a bit of a sleight of hand.
  • It is also important to note that this cut replaces the phony $400 billion in defense cuts the Obama administration proposed over twelve years.

To sum up: the numbers put out there are far from certain. They are a mix of wishful thinking and spin, and there is no guarantee some future Congress won’t mess this up (I can’t imagine why I’d say something like that). But to not be overly pessimistic, the very fact that Democrats and Republicans actually agreed to some sort of defense spending reduction is a huge leap forward compared to the political climate two years ago. I just wish it were more than a little nudge in the grand scheme of things.

On a final, long note, it is important to keep in mind that not all defense cuts are good cuts. It is not entirely clear to me how these possible defense cuts would be achieved, but I am wary of simply slashing the topline of the military budget. Giving the Pentagon a number and letting them figure out how to best save can work, since it is the top brass who knows that the military needs and what it can go without (Congressmen seem to always forget this as they keep pouring money into procurement programs the services don’t want, or never even asked for in the first place). However, the U.S. military is in a fairly precarious situation right now. It is worn down after ten years of warfighting and probably needs billions in investments to get up to the level it was before 9/11.

Therefore, simply handing the brass a topline number to live within won’t cut it (no pun intended). At this point, any responsible reduction in defense spending has to come as a result of a real, honest strategic review of the U.S. armed forces. The military is simply asked to do too much. Reading the Quadrennial Defense Review or the National Military Strategy one gets the impression U.S. troops can and should do absolutely everything, and no risk of any threats is acceptable. It is hegemonic policy by way of wishful thinking. If such a strategic review concludes that more defense spending, and not less, is necessary, then so be it. I’d probably disagree with it, but then at least it would be good strategy based on sound policy.

7 comments to The Debt Deal and the Alleged Defense Cuts

  • Tosk59

    Before the final deal arrived, there was a “Reid plan”This proposed $1 Trillion in DoD “cuts”.This was achieved by “cutting” the spend on ‘overseas contingency operations’ i.e.Iraq and Afghanistan. This was because the CBO baseline include $160 Billion a year for 10 years = $1.6 Trillion. Since there is no way the US will be “all-in” in both these countries for the next 10 years, there was a huge savings available here. Then they did the deal. AFAIK this trillion was not part of the first set of cuts. Givent that can’t they now cut $500B from here (via trigger) without really touching the DoD??

  • Hans-Inge Langø

    My understanding is that OCO is not part of any debt discussion, since it is assumed that this will go away anyways. Without having it in front of me, I seem to recall CBO projecting a steady decrease in costs for OCO (based on some understanding of how troop withdrawal would look). If they pulled out of Afghanistan quicker than projected, then theoretically they could count that as savings, but I think they’re trying to focus on baseline solely.

  • Tosk59

    Looking at Table 1 Line d in the CBO PDF at http://cbo.gov/doc.cfm?index=12338 it certainly looks like to me that the CBO baseline does NOT assume any reductions in OCO spend.

    Quote from CBO analysis of “Reid” plan: “The separate caps on appropriations for the wars in Afghanistan and Iraq and for similar activities would reduce budget authority by $1.2 trillion and outlays by $1.0 trillion relative to the adjusted March baseline.”

    • Hans-Inge Langø

      That is strange. I must have misremembered about the CBO projection. You’re absolutely right that cutting OCO will give savings, but then you’re getting into creative book keeping–even more so than Congress is already doing. My impression is that “everyone” expects OCO to start decreasing soon, so projecting a steady BA/OT line from today’s number, then cut that and count the gap as savings is a bit dishonest. I’ll ask my old coworkers at Cato and Stimson if they have a more coherent answer than me. But thank you for pointing this out!

  • Tosk, you’re correct about the terms of the Reid plan, the final deal, and the CBO baseline. There’s two hang-ups, though.

    First, claiming this savings is gimmickry more than reality. As you rightly point out, everyone knows that the CBO baseline will bend down as the wars end. Simpson-Bowles took it for granted, instead using a baseline adjusted for CBO’s 60K troops by 2015 option. Rivlin-Domenici went even further, anticipating 30K by 2013.

    Second, and related, the players know this is gimmickry and thus aren’t willing to count it. They know how to use CBO’s baseline, and they know that Reid was just gaming it. They read Simpson-Bowles and Rivlin-Domenici, and they know what the state of the art is.

    So to borrow a bit from economists’ theory of rational expectations, Congress has already anticipated falling war spending and accounted for it. Even though CBO’s baseline has to lag, very few are willing to acknowledge OCO cuts as debt reductions *until* they fall below at least one of those CBO alternative options.

    The debate now centers on base Pentagon funding, including in the final deal. Caps and sequestration both are specified against the non-war budget, (regrettably) leaving OCO as unspecific as ever.

  • Tosk59

    Matthew,
    I understand the gimmicky nature of the whole thing. However, the fact of the matter is that all the “savings” being claimed by all sides come from projections for the next 10-years of expenditures against a particular baseline (AFAIK the CBO Baseline of March 2011). There was $1.7 Trillion of OCO in the CBO baseline on July 27th, which allowed Reid the gimmick of claiming to “cut” $1 trillion. So, unless the CBO baseline was in fact changed (and I’ve seen NOTHING to indicate that, EVEN IF you’re right that everyone anticipates falling war spending)the “extra” is still there for the claiming as gimmick “cuts”

    Now the next big tranche of cuts will happen via the automatic trigger if the “Super Committee’ (Congressional Joint Select Committee on Deficit Reduction) doesn’t come up with a plan. But it still appears to me that they have this magic “cushion” still built into the CBO baseline that everyone is using for scoring “cuts”, and this will be available for them to monkey around with!

    Supporting quote from http://bit.ly/pq6Hvq : “Finally, war funding is basically exempt from the deal. As long as Congress and the President designate funding as Overseas Contingency Operations funding, the caps are raised by that amount. Its probably good to have a safety valve to fund our troops in the field — but it’ll be interesting to see if the Pentagon, administration, and Congress can resist hiding other defense spending in this money free from all the restrictions of this deal”

    Bottom line: I call it a gimmick, you call it a gimmick, however when the major pressure is on Congress can cheat and call it a cut (and it will be based on the current definition that is being used to measure all the other “cuts”)

  • Tosk59

    Per “DoD halts shifting war money into base budget” at http://www.federaltimes.com/article/20130507/AGENCY01/305070002/DoD-halts-shifting-war-money-into-base-budget we read:

    “Such a hold on shifting money to the base, coupled with the expectations that OCO funding will not decline apace with the troop drawdown in Afghanistan, could mean that some programs that were in danger of losing their funding could find a safe haven in the OCO budget, defense experts say”

    … so perhaps OCO not being used to find “debt reductions’ but certainly OCO being used as a ‘slush fund to cover ‘needed’ spending that’s not covered by Base…