The 2008 Budget: A Peak, or a New Pattern?

Issue Brief

On Monday, the Bush Administration released details of its proposed military budget for 2008. According to Steven Kosiak of the Center for Strategic and Budgetary Assessments, it is the biggest military spending request since 1946 — the last year of budgeting for World War Two. You’d think that would warrant splashy coverage in the national media, but in fact all of the major papers — the Times, the Post, the Journal — consigned the story to the bottom of an inside page. Many of the key details about the budget were reported last week by Bloomberg Business News reporter Tony Capaccio, and the big papers seemed to treat the formal release of budget documents on Monday as a ho-hum affair. Page One was reserved for more important news, like the fact that it is cold outside.

Which raises an interesting question. Is higher defense spending now so wired into popular expectations that the biggest defense budget in two generations isn’t news? As Capaccio pointed out on February 3, the proposed defense budget would represent the tenth consecutive year of real increases in military outlays since a post-cold-war lull in spending. During most of the intervening period, commentators have argued that defense spending was surging temporarily — in response to the Balkan war, the 9-11 attacks, the conflict in Iraq and so on. But the Congressional Budget Office reports that in fiscal 2006 military outlays totaled $500 billion, which means the further increases expected in 2007 and 2008 will place defense spending well above its range for the past fifty years, even after removing the effects of inflation. Defense spending has tested the $500 billion limit (in constant 2007 dollars) three times previously since World War Two; each time it peaked and began a multi-year decline. This time could be different.

In the parlance of technical analysts on Wall Street, military spending may be breaking out of its characteristic “trading range” to establish a new pattern for the defense sector. There are plenty of reasons to think this could be true. First, Democrats have abandoned their aversion to military spending, and look unlikely to significantly trim the President’s request. Second, all of the military services say they are short of funds for modernization despite the high level of spending. Third, costs associated with the all-volunteer force and a “long war” against global terrorism look unlikely to abate. And perhaps most importantly, the economy has grown vigorously during the Bush years to a point where all of the military’s pressing needs can be met for about 4% of Gross Domestic Product.

On the other hand, there are also cogent reasons for believing that defense spending is approaching a top. The factors most frequently cited to support this thesis are the aging of baby boomers and the federal budget deficit, which lead some experts to project unsustainable tension in future years between tax receipts and rising entitlement costs. Beyond that, the current up-cycle in defense spending was spurred mainly by 9-11 and the war in Iraq; the absence of follow-on attacks in America and waning public support for the Iraq campaign could undercut efforts to sustain defense spending at current rates (the Office of Management and Budget projected last year that defense would fall from 4% of GDP in 2006 to 3% in 2011).

Obviously, any repetition of the 9-11 attacks would bring another surge in defense spending. In the absence of such attacks, the key driver of spending levels will be the duration of the U.S. military commitment to Iraq. Since President Bush shows no desire to withdraw and Democrats lack the legislative majorities necessary to compel retreat, it looks like defense spending will not decline for the remainder of the decade.