Defense Spending in the Crosshairs

Can the U.S. Continue to Afford the Current Level of Defense Spending?

According to the Stockholm International Peace Research Institute, the level of spending by the U.S. Department of Defense is similar in size to the next ten largest nations’ combined annual military spending and is larger than all but two dozen countries’ GDP. The U.S. Department of Defense budget will be near $700 billion in 2021. And this figure does not include many items, such as the $243 billion estimated to be spent on veterans. The U.S currently accounts for approximately 36% of the world’s defense expenditures. Presently the DoD budget represents one-half of all Federal government discretionary spending. Can the U.S. continue to afford this level of defense spending?

Budget Breakdown

Spending at the DoD actually accounts for only a portion, albeit the largest portion, of spending on “security” for the U.S. Expenditures at the Department of Homeland Security and Veterans Administration, as well as other agencies, are related but are not part of the DoD budget. The DoD budget can be divided into two key parts: base spending and Overseas Contingency Operations (OCO), which originated as a means of funding wars outside of the base budget. In 2020, the DoD budget authorization was $721.5 billion and included $69 billion of OCO spending. OCO spending has its critics, as over the years both Congress and the President have at times adopted more, and at times less, expansive definitions of OCO expenditures to accommodate the strategic, budgetary, and political needs of the moment. What is notable, however, is that since FY2001, DoD funding designated for OCO has averaged 17% of the department’s total budget authority, up from just 6% during the conflict in Vietnam.

The budget can be further broken out into its constituent parts. There are four main areas of spending: military personnel, which accounted for about 20% of the 2020 budget, although if you include benefits and the costs of civilians of the military payroll, this increases to over 39%, Operations and Maintenance, 40%, Procurement, 21%, and Research & Development, 14%. Unless the number of active duty members shrinks, it is unlikely that personnel costs decline. Weapons systems are more and more complex, use exotic materials, and must be able to function in environments like outer space. Could be another area tough to find budget savings. R&D is similar as researchers continue to need to seek out cutting edge technologies and weapons systems in order to stay ahead of the U.S’s peer adversaries.

Room for Reductions

Cutting the DoD budget has proven difficult over time. One only needs to revisit base closures to see how potential cost-cutting can be held back by political considerations. Obviously, a quick way to reduce the cost of defense would be to end the spending that drives OCO expenditures. Some of this is for funding the wars on terror and some for other causes, but in terms of just reducing current spending, this would be a quick means.

Take-Away

Looking at history, one can see that over time, with a couple of brief exceptions, defense spending has been on a rising trend since 1950, when the DoD budget was just over $100 billion in 2019 dollars to where we are today. However, as a percentage of GDP, 2020 Defense spending will be around 3.3% of normalized (i.e., non-COVID) GDP, a level well below the 4-6% of GDP range for most of the past 40 years.

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