A Defenseless Budget Freeze

As part of its election-year attempt to appear fiscally responsible, the Obama administration announced recently a proposal to freeze discretionary spending in part of the federal budget. The term “discretionary” spending refers to those parts of the budget that must be appropriated annually for the government to spend them, hence the Congress has discretion about whether to spend them or not. These items are also known as “controllable” budget items, since they are controlled by annual budgetary decisions. The other part of the budget is non-discretionary (or uncontrollable), and encompasses those budget items that are automatically spent unless the Congress take specific action in a given session to alter or cancel them. Entitlement programs like Social Security and Medicare are uncontrollable or non-dicretionary, although some increases in entitlements occasionally fall into the discretionary category.

Most of the federal budget is non-discretionary. The largest uncontrollable item categories are in entitlements and service (paying the interest) on the national debt, a rapidly growing item. Collectively, these two items (especially if one includes payments to veterans) makes up about two-thirds of the federal budget, and uncontrollable items in other budgets push the non-discretionary part of the budget up to around three-fourths of federal spending. That leaves a very small percentage of federal spending that is actually subject to meaningful Congressional or executive branch control. When annual budget battles rage rhetorically about control of federal spending, it is well to keep in mind that these fights are over a fairly small slice of the federal pie.

The largest single location of discretionary spending in the federal budget is in the defense budget. Historically, about two-thirds of defense spending used to be discretionary, although that figure is probably down some after eight years of two wars. The government is reluctant to tote up and publicize exactly how much money the U.S. spends annually on defense.  The official basis of equivocation depends on exactly how one defines defines defense spending–a distinction reminiscent of Bill Clinton’s questioninig what the meaning of “is” is. Is, for instance, spending on veteran’s medical care and pensions a defense or a social services entitlement expenditure? Officially it is the latter, meaning that spending does not show up in defense outlays.

The defense outlay of the United States is now push one trillion dollars a year. Official estimates are somewhat smaller–for the next fiscal year, for instance about $650 billion for the Department of Defense (DOD) budget, and an additional two hundred billion or so Iraq and Afghanistan. If one dug under enough budgetary rocks, one could probably unearth another $150 billion or so to reach the round $1 trillion mark.

This brings us to the budget freeze. The problem, of course, is that the government is spending increasingly more than it is taking in, a situation everyone agrees is not good and about which something should be done. Freezing the growth in discretionary spending speaks somewhat to that problem, especially if ALL federal discretionary spending is included. At that, it would not solve the problem and bring outlays in line with receipts, but the proposal is indeed “defenseless”–defense spending (the largest discretionary category, remember!) is exempted. The result is a spending freeze on a relatively small portion of a  very small portion of federal spending. Now that is bold thinking!

Why is defense spending exempt? The answer, of course, is wrapped tightly in the U.S. flag: We are at war (two wars), and protecting the United States is our highest priority, beside which all other concerns pale. Thus an exemption for defense spending, and a conundrum for the country: do we want to keep spending at current levels and run up additional debt? or do we want to cut spending enough to bring government receipts back in line with expenditures? If one believes, as Dwight Esienhower famously did, that national security depends on a strong economy and that the deficits undermine that economy, it is a serious question.

There are, of course, two ways to right the fiscal ship of state: spending less, or gathering in more. One can politically dismiss the likelihood of the latter, which would involve substantial increases in taxes, possibly even doing something as radical as reintroducing a meaningfully progressive tax structure on income (perish forbid!). The other is drastically to reduce spending.

But where can large spending cuts come? The answer is defense spending. Two areas stand out. One is the cost of maintaining the current military structure the United States has. The all-volunteer force (AVF) has been in place since 1972, and it has produced a fine, very capable force. It has also, however, produced a relatively small force, and one that is very expensive, particularly because it requires paying military members competitively and having to contract many formerly military tasks to private contractors–at very high costs. There are cheaper alternatives like a return to a force that contains conscripts, although such a force is politically unacceptable. The other source of spending would be to shut down the wars the United States is waging. Both Afghanistan and Iraq are arguably strategically marginal operations, but they are expensive. Does anyone seriously believe that the return the United States will reap from these wars will even approximate the costs? Shut them both down and then look at the deficits (they don’t disappear, but they certainly shrink).

The Obama proposed spending freeze is not an inherently bad idea, and it will save more money than its absence would have yielded. At the same time, it represents little more than a symbolic gesture if the serious intent is to reduce or eliminate federal deficits and thus additions to the federal debt. Doing so requires far deeper cuts in federal spending (and inevitably “revenue emhancement” for those who cannot say taxes) that cover a much wider range of the discretionary budget–in other words, freezes and reductions that are not defenseless.

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One Response to “A Defenseless Budget Freeze”

  1. I’ve really enjoyed reading your articles. You obviously know what you are talking about! Your site is so easy to navigate too, I’ve bookmarked it in my favourites 😀

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