Deficit Reduction: Pentagon Must Stop Adding People, Begin Cutting Workforce

The federal budget is trapped in a structural deficit that the White House says will average 6% of gross domestic product over the next ten years. Since federal spending only claims about 20% of GDP in a normal year, that means the Obama Administration expects to borrow over a quarter of all government outlays between now and 2019. If interest rates on the national debt were to spike during that period — which might be unavoidable, because other countries are getting tired of taking our I.O.U.’s — then annual payments on the accumulated debt could approach a trillion dollars. At that point, the debt would begin weighing down the nation’s standard of living, economic competitiveness and global influence.

It would be nice to believe we could grow out of this problem through rapid economic expansion, but after the way the economy has performed in this decade, that supply-side solution looks impractical. Deficits will need to be reduced at least partly through some combination of spending cuts and tax increases. Democrats won’t vote for cuts in domestic programs and Republicans won’t vote for tax increases, so the Pentagon looks like a logical candidate to bear the brunt of deficit reduction — especially given the relatively modest threats the nation is currently facing. But let’s say for the sake of argument that defense only has to give up its “share” of the deficit: the military receives about a fifth of all federal outlays and a fifth of the $1.4 trillion deficit projected for fiscal 2011 would be $280 billion. Thus, the Pentagon would need to reduce its spending from the $708 billion currently planned for 2011 to $428 billion.

Fortunately, tax receipts will increase and the deficit will fall as the economy recovers from the recession, but even taking that into account, the White House still projects deficits averaging about $900 billion per year over the next ten years. So to contribute its 20% “share” of deficit reduction over the coming decade, the military would need to find about $180 billion in annual savings. That’s more than it plans to spend on all overseas contingencies in 2011, and nobody is talking about giving up in Iraq and Afghanistan. Before taking office, Mr. Obama’s advisors estimated that by the fourth year of his administration it might be feasible to save $90 billion annually on overseas contingencies compared with what the Bush Administration was spending, so let’s take that number at face value: the Pentagon would still need to find another $90 billion in savings each year.

Policymakers have already begun the search for savings in the so-called “investment accounts” that fund weapons purchases. The Army has lost the centerpiece of its modernization plans, called the Future Combat Systems. The Navy has lost two of the three new classes of surface combatants it announced at the beginning of the decade. And the Air Force has lost its next-generation air-superiority fighter (the F-22), its next-generation search-and-rescue helicopter (CSAR-X), and its next-generation secure communications satellite (TSAT). No doubt about it, weapons programs are being cut. But the military can’t take $90 billion more out of those accounts each year, because that would require ceasing investment in most new technologies — and technology is the biggest single advantage the joint force has on the battlefield.

The conclusion is obvious. If the government wants to preserve a balanced defense posture while achieving major reductions in deficits, then the Pentagon must remove tens of thousands of personnel from its workforce. That’s the part of the defense budget where costs are rising fastest, and all those new people — both uniformed and civilian — bring with them a forward commitment of healthcare and retirement benefits that extends many decades into the future. Some observers might propose cutting so-called “readiness” accounts, meaning primarily the operations and maintenance accounts; but it turns out on close inspection that much of the increase in operations and maintenance outlays is traceable to people costs such as rising healthcare outlays and civil-servant pay. So the bottom line is that the Pentagon can’t do its part to reduce the nation’s budget deficits unless it stops hiring new people and starts getting rid of some of the people it already employs.