The Washington Post seems to have become the house organ for those who insist the defense budget must be saved at all costs, arguing today that the "fiscal cliff" (which I have described as a fiscal "slide") would be a disaster for defense.
It's a case made by a number of folks, most of them (like the defense industry and the neo-conservative think tanks) cozier with the Iron Triangle than the Post. And, given that we spend more on defense than most of the rest of the world put together and have a global military capacity second to none (no one else even tries to match us), the argument falls on its face.
What is disturbing about the Post editorial, however, is not only that it is wrong on the merits, it is simply wrong on the facts. It claims that sequester would force the Pentagon to "fire" more than 100,000 civilian workers. Presumably, they got that number from a back-of-the-envelope report by the Center for Strategic and Budgetary Assessments.
But even the CSBA study acknowledges that "furloughs" are part of the likely DOD response to a sequester. Lay-offs simply cost too much to carry out, and the furlough route, while tough, would be manageable in a department that has the largest back office (proportionally) of 29 countries whose "tooth-to-tail" ratio was studied by McKinsey in 2010. Only the Swiss, who have not gone to war in centuries, have a larger back office.
The Post says training for non-deployed forces would be cut back in a sequester, but training funds are in the most flexible accounts under a sequester, allowing DOD managers to protect training, if they like, and maybe cut less grass at Ft. Belvoir for a few months.
Oddly, the Post says shipbuilding funds would decline 4.5 percent under a sequester, though the Office of Management and Budget has said clearly that the sequester would take 9.2 percent of defense resources. In any case, the sequester leaves untouched current contracts and programs in shipbuilding and elsewhere, with no impact on current production.
Most bewildering of all, the Post argues that management savings could be had, especially in the area of health care programs "which consume nearly 30 percent of the budget." Health care programs are certainly an issue at DOD, as they are for the rest of us. But according to the Congressional Budget Office, health care programs consume 8 percent of the defense budget, not 30 percent. As Daniel Patrick Moynihan famously put it: "You are entitled to your own opinion, but you are not entitled to your own facts."
The debate over the defense budget, in the larger framework of the coming month's fiscal negotiations, is going to be interesting. But it is not doomsday for defense. And arguing from strange facts does not make it otherwise.
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While the nation's capital burns with gossip about David Petraeus and his love life, the fiscal cliff is not far away. I don't often wade into the waters of broader federal budgeting, but people are beginning to explore the endgame of this Beckettian drama and a few wonder about its implications for the defense budget. Defense is just a residual issue here; the big top is focused on revenues and entitlements.
Paul Krugman says the whole cliff fracas is a diversion, especially at the leading edge of a recovery; keep spending until the economy is healthy.
Unfortunately, the political system and the march of law and time are inexorable. Those pesky Bush tax cuts expire at the end of the year, so something must be done, either to extend them or to split them in two, the way Obama proposes: families with over $250,000 of income get a higher rate -- up from 35 percent to 39.6 percent -- while everybody else keeps the lower rates in the original legislation.
A few other items are lying around, needing urgent repair before damage is done. The Alternate Minimum Tax is not indexed for inflation, so more middle-income families (including yours truly) will get whacked next April, unless the AMT is at least "band-aided" for the 2012 tax year. America's doctors are surely going to lobby against letting their Medicare reimbursements fall, which happens at the end of December. It seems like very few Americans are going to lobby to perpetuate the 2 percent reduction in the payroll tax for Social Security, so maybe that is gone; the same may be true for the extension of unemployment benefits, now that the economy is headed to recovery.
The long poles in the circus tent are sequestration, the likelihood that we will again bump up against the debt ceiling toward the end of 2012 (with Treasury vamping to postpone the problem into February), and the threat of a government shutdown on April 1, in the absence of final appropriations.
The debate is all about these issues, especially whether the White House and the Republicans in the House are prepared to put the biggies on the table: revenues and entitlements. Defense is the side-show, even though the "defenders of defense" have danced up and down for more than a year, trying to make it the main event.
It seems to me likely that one of two scenarios plays out over the next six weeks (or 14 legislative days, if you count that way). Either way, it will be sausage, not a Grand Bargain.
Option One: Dive off the cliff. The president lets the tax cuts expire and sequester happen. The Office of Management and Budget defers the impact of the sequester by apportioning funds to agencies at the level appropriated in the current continuing resolution (which goes until March 27, 2013), so spending does not actually take a whack right away.
The new Congress comes in and starts with the functional equivalent of a clean slate -- tax rates have gone up, the sequester has happened (but the impact is deferred). They start a new round of talks with the president, leading to an agreement that kicks the can down the road. The agreement is a framework on the issues that matter: revenues and entitlements. The framework sets targets for both, raising revenues and lowering entitlement spending projections. But there are no details: these are left to the Senate Finance Committee and the House Ways and Means Committee to fill in by a given deadline. Over to you, David Camp and Max Baucus.
In this scenario, discretionary spending is a residual issue. Perhaps the agreement lowers the "caps" set out in the Budget Control Act of August 2011 to make the numbers work. Defense dollars fall below the numbers projected in the current caps. David Leonhardt thinks so; so do I.
Advantages of Option One: it sets new baselines for revenues and for discretionary spending. Anything the next Congress does to change those baselines looks good, because Congress can claim that it lowered taxes (from the new baseline) and that it raised spending (from the baseline).
Disadvantage: The markets may not be happy, sending the stock market into a tailspin nobody wants.
Option Two: this same deal is reached before the end of the December. Disadvantage: the new Congress is cut out and there are no new baselines for revenues and discretionary spending.
Advantage: the markets like the agreement and the recovery appears to continue. It has the same effect on discretionary spending: it is a residual. To get the overall number, defense still goes down below the current caps, possibly even in FY 2013.
Either way, from the view of someone in the defense business, the consequence of defense being a side-show, with reductions needed to get the whole package to line up with the existing or new spending targets, is that defense budgets continue to go down.
Just what I always thought.
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There was not much substance on the defense budget in Monday night's debate. That's hardly surprising, and the fact that the candidates kept slipping into domestic politics makes it clear that this is not a foreign policy campaign. President Obama mentioned the dreaded fiscal cliff only to say it would not happen. I'm not sure how he knows, since it is the law and will take a congressional deal to avoid. But the general silence on the subject indicates there is no political traction in the topic.
So, I posed a test on Monday for both candidates, and they took an incomplete on most of it. To wit:
1. Romney avoided his notion of spending 4 percent of GDP on defense. No points and a demerit for failing to recognize that defense budgets are going down anyway.
2. He ducked, as well, on whether his plan would add $2 trillion to defense, but he did not deny it, either. So no points either way.
3. They both stayed away from the subject of defense and the size of the GDP. No points.
4. Romney gets no bonus points, which he would have earned, for detailing a budget plan that paid for his $2 trillion add to the defense budget. Is there a plan?
5. A half a point to Romney for adding ships to the fleet and keeping the 100,000 troops, but that was already public. No full point, which he would have earned for a more detailed defense spending plan.
6. Romney loses a point for saying he would buy 15 ships a year, even though we have not done so since 1915.
7. One point loss to Romney for arguing that the Navy would be as small as it was in 1917 (he is actually wrong by about 30 ships). A bonus point to Obama for having the snappiest come-back of the debate.
8. A point loss to Romney for failing to say what Middle East country he would invade with the additional ground force. In fact, he would invade no country -- a new commitment and maybe a bonus point for him.
9. No point loss for calling sequester "doomsday," but maybe a point loss for Romney for arguing that Obama was responsible for a trillion dollars in defense cuts when (a) the first $487 billion do not cut the budget but simply reduce the previously planned growth to a pace that keeps up with inflation, and (b) both these and the $500 billion from a sequester are the result of the Budget Control Act, which the Republican House supported.
10. See point 9.
11. Nobody gets a point for fiscal acumen; neither noted that even after a sequester the defense budget would start to grow, again.
12. Neither candidate noted that the FY 2013 defense budget would still be
FY 2007 level, pretty historically high for defense.
13. Neither candidate gets points for proposing how to fix the procurement system. They didn't even talk about it.
14. Neither candidate gets points for history; neither noted that even with a sequester, the defense budget would decline less that it has in every previous defense draw-down (an average of 30 percent in constant dollars).
15. No points go to either candidate for political courage on military pensions. Neither called for reform of a system that deprives the military of a pension if they have served less than 20 years and then gives them a full pension regardless of age.
17. Can the Pentagon manage weapons programs with 9.4 percent fewer resources? Yes, but neither candidate said so. No points.
18. Budgets limit strategic appetite. Nobody said so Monday night. No points.
19. Neither candidate suggested that we do "less with less" in defense. No bonus points for a realistic military strategy, as a result.
20. Obama gets no points for admitting that there are no budgetary savings from ending the war in Afghanistan. He did not admit it, but, then, he did not claim the phantom savings, either. As I said in the last column: you can't save money from money you never planned to spend in the first place.
We only had a faint echo of the reality we face in defense: we are in a defense drawdown because the wars are ending, the deficit must be lowered, the debt restrained, and the economy fixed. So no final round of applause for finally recognizing reality instead of political pandering.
Gordon Adams tracks the budget and the national security establishment for FP.