Will Obamacare Squeeze Defense Spending Out Of The Federal Budget?

A friend of mine who is, shall we say, not of the progressive persuasion fears Obamacare will eventually cost so much that the U.S. will no longer be able to afford a world-class military force. He points out that the United Kingdom nationalized its healthcare system right after World War Two, substituting taxes for private insurance in funding medical services; within a generation, Britain’s military had to struggle to defeat Argentina in the fight over the Falkland Islands. He thinks the same thing might happen here.

Initially, I dismissed his reasoning because the U.K. today only allocates about half as much of its GDP to healthcare as America does — 8.4% versus 17.9%. It seemed to me that there were other factors at work in Britain during the early postwar period that played a bigger role in undermining its commitment to military power. But on reflection, I’m not so sure my initial reaction was right.

First of all, defense spending was already programmed to decline to a mere 13% of the federal budget by 2017 even before OMB resurrected the concept of sequestration. Since entitlements are largely exempted from sequestration, it’s a safe bet that if across-the-board cuts to discretionary accounts go forward military spending will claim an even smaller share of the budget at the end of President Obama’s second term — something like 11-12%.

Second, unlike America today, Britain was not running massive budget deficits when it established its nationalized healthcare system. The persistence of trillion-dollar deficits since President Obama entered office has split the GOP between defense-hawk and deficit-hawk factions, diminishing support for military spending in the political system. Democrats have always been pretty good about supporting the troops, but it is usually the Republicans who shell out money for the weapons they need, so with the GOP divided military investment accounts are being raided year after year to make ends meet.

Third, although the Congressional Budget Office assessed Obamacare to be revenue-neutral — meaning that it wouldn’t raise taxes if implemented as planned — we all know that’s nonsense. It will gradually expand the same way Medicare and Medicaid did, until it far exceeds the scale of current federal healthcare programs. After all, Obamacare covers 30 million new users who were previously uninsured. Baby boomers will be needing more medical care as they age. And now everybody from AARP to the National Rifle Association is calling for more government spending on mental health services.

And then there is one other factor that postwar Britain and post-millennial America have in common: when economies stop growing, government tends to step in. Not just with expanded medical services, but with expanded everything. Britain’s government eventually nationalized a wide swath of the economy — from airlines to broadcasting to steel-making — as the private sector’s competitiveness faltered. So it is with the Obama Administration, which responded to the recession it inherited from the Bush Administration by increasing federal involvement in a range of industries.

If you’re a conservative, this dynamic looks counterproductive: the more government intervenes in the economy, the less competitive it becomes. But the more salient point for present purposes is that government healthcare programs tend to expand in tandem with other social-welfare and regulatory schemes, cumulatively burdening the national budget in a manner that makes it harder to sustain robust defense outlays. So on reflection, I think my friend is right: Obamacare is a harbinger of continuous declines in defense spending — until some big threat comes along that scares us into changing our priorities.