Defense Budget Threatened By Stealth Cuts

One of the more remarkable decisions by President Obama has been to maintain the historically high level of defense spending bequeathed to it by the outgoing Bush Administration. For fiscal year 2010, the administration requested some $534 billion for defense or three percent more than the preceding year. This amount did not including funds for Iraq and Afghanistan. Secretary of Defense Robert Gates has spoken about his goal of seeing future defense spending increase by one percent annually above the rate of inflation (today that would be 2-3 percent overall). This sounds good but because of the high cost of a volunteer military and the cutting edge nature of defense products the inflation rate for DoD is higher than the rate for the nation as a whole. The administration argues that its approach to defense spending is justified because the world is becoming ever more dangerous.

Unfortunately, even as the administration struggles to maintain an adequate defense budget on the one hand, it has acquiesced to “stealth” cuts imposed by Congress, on the other hand. These cuts come in the form of rescissions to an already approved defense budget. Rescissions are reductions in approved spending to offset new appropriations. They enable Congress — and the administration if its signs a spending bill — to claim that the measure is revenue neutral.

On August 10, President Obama signed into law the Education Jobs and Medicaid Assistance Act. This act provided some $26 billion total in new spending of which $10 billion went to help avoid teacher layoffs and some $16 billion was to be used to increase federal payments to the states for their Medicaid costs. In order to avoid further deficit spending the act needed to be revenue neutral. This was achieved by rescinding or reducing already approved spending in other areas, one of which was defense. Overall, the bill cuts defense spending by some $2.3 billion. Specific cuts are taken in relatively small bites from a wide range of Defense Department programs. This act cuts nearly one half a percent from the planned increase in defense spending.

Rescissions can play havoc with defense programs. They force unexpected program reductions and even cancellations. In turn, this forces the Pentagon to buy at uneconomical rates or to pay termination costs that may exceed the value of the amount rescinded. Rescissions also cause problems for defense contractors who need program stability in order to be able to perform well and to provide the government with best value for the money.

In terms of their effect on the people and the economy, the rescissions approved in the Education Jobs and Medicaid Assistance Act are a wash, at best. For example, the act calls for $11 billion to be cut from the Food Stamp Program. Billions more are taken from the Recovery Act intended to stimulate the economy. Some $70 million is taken from the State Department’s Civilian Stabilization Initiative, a program that would take some of the responsibilities for managing overseas crises off the back of the U.S. military by providing for a civilian response corps. By taking a little here and a little there, the rescissions process makes the business of running a government and providing for national defense more difficult.