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Choosing the Nation's Fiscal Future: Chapter 7: Defense and Domestic Spending

Choosing the Nation's Fiscal Future: Chapter 7: Defense and Domestic Spending

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Choosing the Nation’s Fiscal Future is the culmination of two years of work by the Committee on the Fiscal Future of the United States, a joint project of the National Academy of Public Administration and the National Research Council of the National Academy of Sciences. Comprised of experts who represent a diversity of disciplines, a wealth of experience, and a wide range of political and policy views, the Committee members volunteered their time to produce an extraordinary body of work.

The report illustrates many ways that the nation can align federal spending and revenues to stabilize the debt within a decade, examines the cost of delaying action, and offers a test of fiscal responsibility that any proposed federal budget – including the one President Obama will propose next month – should be able to meet.
Choosing the Nation’s Fiscal Future is the culmination of two years of work by the Committee on the Fiscal Future of the United States, a joint project of the National Academy of Public Administration and the National Research Council of the National Academy of Sciences. Comprised of experts who represent a diversity of disciplines, a wealth of experience, and a wide range of political and policy views, the Committee members volunteered their time to produce an extraordinary body of work.

The report illustrates many ways that the nation can align federal spending and revenues to stabilize the debt within a decade, examines the cost of delaying action, and offers a test of fiscal responsibility that any proposed federal budget – including the one President Obama will propose next month – should be able to meet.

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Published by: Choosing Our Nation's Fiscal Future on Jan 13, 2010
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7Options for Defense andOther Domestic Spending
Although much of the debate about the federal budget focuses on theprojected growth in costs for Medicare, Medicaid, and Social Security, theyare only three of a vast number of federal programs and activities. Hun-dreds of other programs—large and small—touch the lives of almost allAmericans and implicitly reflect views about federal roles and responsibili-ties that are often highly contested. The total of spending on these programsis higher than that for Medicare, Medicaid, and Social Security combinedand under current policies is projected to remain so until 2014.Although we group all of these spending programs under the singleheading of “defense and other domestic spending,” that heading hardlycaptures the range and diversity of the important public missions they rep-resent. They include enormous expenditures for the military services andweapons, intelligence gathering, and homeland security. They include dis-ability payments and health care for veterans and members of the military;emergency aid in the wake of disasters; a panoply of programs supportingeducation, training, and income support for the unemployed; and otherservices to expand opportunity or provide care. They include a host of ef-forts to improve transportation, the natural environment, manage nationalparks and forests, protect consumers and foster orderly markets, and aidparticular industries and sectors. The range of tools used in this array of programs is similarly diverse, including grants to state and local govern-ment, payments to individuals, and extension or guarantees of credit andinsurance. The recent downturn has both added to the list of programsand augmented their scale, temporarily increasing their combined spend-ing from less than 10 percent of gross domestic product (GDP) in 2007 to
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CHOOSING THE NATION’S FISCAL FUTURE
more than 16 percent in 2009—largely because of economic stabilizationand recovery initiatives.
SPENDING CATEGORIES AND TRENDS
The vast majority of spending for defense programs, which includessuch related functions as intelligence, has to be appropriated on an annualbasis—that is, it is “discretionary.” In 2008, approximately 57 percentof spending on “other domestic” programs (i.e., nondefense programsother than Medicare, Medicaid, and Social Security) was discretionary.The remaining 43 percent was set by permanent law—that is, it was“mandatory.”Most mandatory programs are so-called “entitlements” that providepayments or other benefits to people eligible by law to receive them. Ex-amples include food stamps, benefits for disabled veterans, federal spendingon unemployment compensation, cash refunds from the Earned Income TaxCredit, and federal civilian and military employee retirement payments.Examples of non-entitlement mandatory spending include Temporary As-sistance to Needy Families and some payments to farmers and for depositinsurance.The domestic discretionary category is very broad and diverse. It includesthe federal judicial system; homeland security; commerce-related activities;education, training, and employment, low-income housing aid, and othersocial service programs; science research and development, space explora-tion, and other technology programs; energy assistance; natural resourceprotection and other environmental programs; and transportation.
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Debates About Spending
In addition to being diverse, the domestic components of this categoryare often controversial. The value of domestic spending is very much in theeye of the beholder. Arguments about excess federal spending often centeron items in this category that are regarded as wasteful, either because theprogram’s purposes are not valued (or are regarded as obsolete) or becausethe programs are not believed to be effective in achieving their stated ends.Critics may argue, for example, that programs providing support for low-income people are excessively generous or encourage dependency, and thatdomestic spending includes unnecessary and sometimes unproductive subsi-dies to interested business or industry groups. They would say that politicsseldom lead to efficient allocation.On the other side of the debate, proponents of domestic spending stressthat it includes useful public investments (even as skeptics may take issuewith the word “investment”) as well as essential services. Advocates con-tend that many domestic appropriations build economic capacity through
 
OPTIONS FOR DEFENSE AND OTHER DOMESTIC SPENDING
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infrastructure investment, new technology, education, and strengthenedrule of law. Advocates argue that low-income support programs are notonly appropriately compassionate but maintain health and help developproductive skills. When much of the federal government was shut down bya funding crisis in the mid-1990s, many Americans felt inconvenienced oreven seriously hurt by the absence of routine services they previously tookfor granted—such as the processing of passports, and open and staffednational parks.On the defense side, differences of opinion as to the budgetary implica-tions of true security are often intense. We do not know when hostilitiesmay emerge or what future threats will materialize. At the most aggregatelevel, defense spending is much like purchasing insurance; there is alwaysuncertainty as to how much is enough (perhaps more so than in other partsof the budget), especially given the costs. This uncertainty is exacerbatedbecause some defense spending—such as that for major new weaponssystems—is often supported (at times against the best advice of militaryand civilian experts) because it serves a domestic constituency whose jobsdepend on it.
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But the issues also run to a deeper level of detail. Programs that wouldprovide defense against a national adversary in a conventional kind of conflict may or may not prove useful in an asymmetric war against terror-ism. Specific policies, such as the war in Iraq, fuel intense arguments overspending priorities. Questions regarding the allocation of a given level of spending among new hardware, maintenance and supplies, troop levels, andhuman resources can be controversial. In this chapter, we present a widerange of alternative levels of defense spending, reflecting not only conflict-ing views about the best use of defense resources, but also fundamental dif-ferences regarding the role of the United States in preserving world peace.Defense and other domestic spending is not projected to grow as ashare of GDP under the study baseline. Indeed, it is projected to fall sig-nificantly as a percentage of GDP over the next decade before stabilizingat a level more than 2 percentage points lower than in 2008. Nevertheless,it can be argued that further spending reductions (relative to the baseline)are appropriate. To the extent that fiscal sustainability is addressed throughspending reductions, finding all of the needed savings in health care andSocial Security will be difficult and, in any event, may take some consider-able time to achieve. Savings in defense and other domestic programs maytherefore be necessary. Putting all spending programs on the table is alsoconsistent with the notion of “shared sacrifice,” which may be an importantpolitical element in fashioning a responsible fiscal program for the future.Some may also assert that the growth in the large entitlement programsreflects such urgent needs that cutting other areas of the budget, along withraising taxes, is necessary to accommodate it.The counterargument is that cutbacks in defense and other domestic

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