2006 Military Budget: Consumption Up, Investment Down

Issue Brief

The basic outlines of the Pentagon’s budget request for the 2006 fiscal year beginning October 1 were revealed yesterday by Anthony Capaccio of Bloomberg Business News. Capaccio has a long history of breaking important news about military budgets and programs, so the accuracy of his figures can be assumed. This brief summarizes Capaccio’s story and notes some key trends in military spending reflected in the 2006 request.

The Bush Administration will request $419 billion for the Defense Department in fiscal 2006, a 4% increase over the $401 billion that Congress approved last year. The 2006 number does not include nearly $20 billion in Energy Department spending on nuclear weapons research and sustainment. It also does not include supplemental appropriations to cover the cost of military activities in Iraq and Afghanistan.

Deputy defense secretary Paul Wolfowitz yesterday declined to provide Congress with an estimate of supplemental spending needs in 2006, but since supplemental appropriations for the Pentagon in fiscal 2005 are likely to exceed $100 billion, it can safely be assumed that the nation will spend over half a trillion dollars on military activities in 2006. By way of comparison, the World Bank’s most recent estimate of the size of Russia’s economy is $433 billion, making it the 16th largest economy in the world (after Brazil at $492 billion).

The biggest category of spending in the 2006 Pentagon request is operations & maintenance at $148 billion, or 35% of the total. That matches the combined share of the request claimed by so-called investment accounts, procurement ($78 billion or 19%) and research & development ($69 billion or 16%). Most of the remainder would go to pay and benefits for military personnel. Spending on consumption activities — military pay and operations & maintenance — will be greatly increased during 2006 by supplemental appropriations for Iraq and Afghanistan, since those outlays are almost entirely for non-investment items.

The 2006 request reflects moderation in the rate of weapons spending, with only four warships funded and a big reduction in the expected level of outlays for missile defense. The Navy has adopted a new sizing range for its fleet that envisions ship counts falling as low as 260 vessels. The Pentagon is also moving ahead with plans to close six of seven fixed-wing military aircraft production lines by the beginning of the next decade. Plans for increased investment in space are unlikely to be funded by Congress.

The overarching trends in military spending are thus surprisingly similar to those in the broader economy. Investment is losing ground to consumption, hardware is losing ground services, and benefits costs are crowding out investment in capital equipment. Rather than getting the technology-intensive force that Secretary Rumsfeld envisioned, the nation seems destined to have a labor-intensive military posture.