Budget Policy and Fiscal Risk: Implications for Defense
Authored by Dr. Dennis S. Ippolito.
September 2001
42 Pages
Brief Synopsis
The defense budget remains one of the central shaping features of U.S. national security and national military strategy. To understand what is possible in terms of defense transformation, one must first have a firm grasp of the budgetary context of strategic decisions.
The author shows that defense will continue to compete with domestic programs for that portion of the budget allocated to discretionary spending, and argues that this is a competition in which defense needs have not fared especially well in the past and may not in the future. If accurate, this assessment will have tremendous implications for defense transformation. The leaders of the Army and the Department of Defense must therefore frame their transformation strategies within fiscal realities.
Summary
The fate of defense budgets is closely tied to the size, composition, and balance of the federal budget. Over the past decade, efforts to reduce the relative level of federal spending and to eliminate deficits yielded disproportionate cuts in defense. Now that the federal budget is in surplus, and expected to remain so for the next decade, the prospects for more adequate defense funding appear more positive.
The reality, however, is that fiscal constraints have not disappeared. For the immediate future, defense will be competing with domestic programs for the approximately one-third of the budget allocated to discretionary spending. This is a competition in which defense needs have not fared especially well in the past and where future outcomes are problematical at best.
More important in terms of defense planning, however, is the long-term budget outlook. Unless current federal retirement and healthcare entitlements are scaled back substantially, the margin to support discretionary spending will begin to shrink dramatically after 2010. The United States, like other advanced democracies, is facing demographic changes that could generate enormous spending pressures in 10-20 years. The challenge, here and elsewhere, is to minimize fiscal risk by ensuring that policy decisions made today produce budgets that are flexible and sustainable over time.
The purpose of this monograph is to provide a fiscal perspective for short-term and long-term defense budgeting. The budget outlook for the federal government is more complex than current surplus projections might suggest. That complexity needs to be appreciated by defense leaders and planners.
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