The versions of the congressional budget resolution (CBR) recently passed by the full House and the Senate Budget Committee (SBC) would add $1 billion and $500 million, respectively, to the Clinton Administration’s $305.3 billion fiscal year (FY) 2001 request for defense.¹ This represents, at most, an increase above the administration’s request of three-tenths of 1 percent. The House would provide another $1.1 billion over the following four years, while the SBC would provide some $400 million more. Altogether the House and SBC versions of the CBR would provide only about one-tenth of 1 percent more for defense than would the administration’s plan over the FY 2001-05 period.

Once the full Senate passes the CBR, House and Senate conferees will meet to resolve any differences between the two chambers. Assuming the CBR agreed to in conference does not differ significantly from the versions passed by the House and the SBC, funding for defense would be projected to rise slightly (2.1-2.3 percent) in FY 2001, dip slightly in FY 2002, and remain essentially flat over the following three years in real (inflation-adjusted) terms.² (See table)

This level of funding might well be sufficient to provide adequately for US security. But it clearly would not be sufficient to pay for the existing defense plan, let alone the expanded plan advocated by some members of Congress. CSBA estimates that fully implementing the current defense plan would likely require increasing funding by 10 percent or more over the coming decade.³ On the other hand, rather than adding more money, US security requirements might be better served by revising the strategy and plans that drive the allocation of defense resources.

CBRs Favor Debt Reduction and Tax Cuts Over Discretionary Spending
According to Congressional Budget Office (CBO) projections, if total spending on discretionary programs (which include defense, non-entitlement domestic and international affairs programs) were kept flat in real terms over the FY 2001-05 period, the United States would accrue budget surpluses totaling some $1.147 trillion.⁴ Of that amount, $976 billion would be generated by the Social Security trust fund. Both the Clinton Administration and congressional leadership have pledged to use this (“off-budget”) surplus only for debt reduction.⁵ Under both the House and SBC versions of the CBR, close to 100 percent of the remaining $171 billion in non-Social Security (“on-budget”) surpluses would be used to finance a $150 billion five-year tax cut.⁶

Non-Defense Discretionary Programs Cut Deeply
Both versions of the CBR also call for deep cuts in discretionary spending, with all of the cuts coming out of non-defense discretionary programs.⁷ The House would provide $135 billion less than needed over the next five years to keep funding for these non-defense programs flat in real terms, while the SBC would require a $105 billion cut. These cuts would be used primarily to offset an expansion of benefits for Medicare and in some other entitlement programs, as well as to pay for the projected modest increase in defense funding.⁸

Long-Term Implication of Proposed Tax Cut for Defense
Unlike last year’s CBR, the House and SBC versions of this year’s CBR project funding levels out only five years (as does the administration’s plan), rather than 10 years. However, there is reason to believe that, if implemented, either version of the CBR would severely constrain funding for defense, not only over FY 2001-05 period, but also in the years beyond. This is because the $150 billion five-year tax cut assumed in both versions of the CBR could easily mushroom into an $800 billion 10-year tax cut. Last year, Congress passed an $800 billion 10-year tax cut that that would have cost almost an identical amount ($156 billion) over the first five years. A tax cut of this magnitude would consume virtually all of the projected non-Social Security surplus, which CBO estimates would otherwise amount to some $893 billion through FY 2010.⁹ In that case, assuming the administration and Congress abide by their pledge not to use the Social Security surplus, a significant increase in funding for defense could be financed only through making deep offsetting reductions in non-defense discretionary programs, or cutting entitlement programs. Neither of these options appear to be politically realistic.

FY 2001 Defense Plus-Up May Come Through FY 2000 Supplemental
Although the CBR is unlikely to include more than a very modest increase in funding for defense in FY 2001, the Defense Department may get a significant boost through the “back door” of the FY 2000 supplemental appropriation. In February, the administration requested $2.3 billion in supplemental appropriations, primarily to pay the FY 2000 costs of operations in Kosovo. The House appropriations committee added another $2.9 billion to the supplemental, including $1.6 billion to cover the Defense Department’s higher-than-expected fuel costs and $854 million to address shortfalls in the military healthcare program. In addition, on March 29, the full House approved an amendment that would add $4 billion more in defense funding to the supplemental. Importantly, this amendment specified that the funding would remain available for obligation through September 30, 2001 (the last day of FY 2001). To be sure, some of this funding, especially the $2.3 billion requested by the administration and $2.9 billion added by the appropriations committee, will be needed to cover FY 2000 costs. However, much of the $4 billion added on the House floor seems likely to be available to cover FY 2001 costs. In addition, although most of the funds in the House version of the supplemental are for readiness-related activities (O&M and military personnel), the inclusion of this extra funding may allow Congress to allocate a somewhat greater share of the FY 2001 defense budget to weapons procurement and R&D, areas Congress has traditionally focused upon.

Enactment of an FY 2000 supplemental as large as that passed by the House (which totals some $12.7 billion, including $9.2 billion for defense), however, is by no means assured. Senate Majority Leader Trent Lott, among others, has called the House bill too costly and has threatened to block its passage. Senator Lott believes that Congress should approve the requested level of funding for Kosovo and “perhaps some additional amount of money” for defense.¹⁰ But he has argued that the supplemental funding should be provided as part of the regular annual appropriations bill which he expects to be passed as early as May.

For more information, contact Steven M. Kosiak or Elizabeth Heeter at (202) 331-7990.

The Center for Strategic and Budgetary Assessments (CSBA) is an independent policy research institute established to promote innovative thinking about defense planning and investment strategies for the 21st century. The center is directed by Dr. Andrew F. Krepinevich. For more information on CSBA, see our web site at: http://www.csbaonline.org.

1. The House passed its version of the CBR on March 24, 2000. The SBC passed its version on March 30, 2000. These figures represent levels of budget authority (i.e., the amounts that may be appropriated by Congress). See the table of page 4 for a comparison of outlay levels (i.e., the amounts that may actually be spent in a given year by DoD) under the administration’s plan and the two versions of the CBR.

2. These percentage changes from FY 2000 assume an FY 2000 defense budget of $292.2 billion (i.e., they assume Congress will enact the $2.3 billion FY 2000 supplemental appropriation the administration has requested—and Congress is currently considering—to pay for ongoing operations in Kosovo).

3. Over the long term, fully implementing the existing defense plan would probably require increasing funding for defense by some $25-50 billion a year above the level needed simply to keep pace with inflation. CSBA, “CSIS ‘Train Wreck’ Analysis of DoD Plans-Funding Mismatch is Off Track,” February 7, 2000, p 1. A considerably smaller, though still significant, increase might suffice to cover the cost of the existing defense plan over the next five years (e.g., a total of $25-50 billion more for the five-year period).

4. Discretionary programs require annual appropriations from Congress. By contrast, funding for mandatory programs, such as Social Security, Medicare and other entitlements, is automatically provided to the extent necessary to cover those individuals who meet the eligibility requirements set in law, and generally does not require annual appropriations. Currently, about one-third of federal spending is discretionary and two-thirds is mandatory.

5. CBO, “An Analysis of the President’s Budgetary Proposals for Fiscal Year 2001: A Preliminary Estimate,” March 9, 2000, table 5.

6. The proposed $150 billion tax cut would directly account for 88 percent of the projected non-Social Security surplus. However, most of the remaining $20 billion would be needed to cover the higher interest payments on the federal debt that would result from the tax cut.

7. Non-defense discretionary spending covers a wide variety of domestic programs, such as education, highway construction, environmental protection, parks, the FBI and health and science research, as well as international aid programs.

8. The House version of the CBR sets aside $40 billion for Medicare reform and to provide a prescription drug benefit, while the SBC version would provide $41.6 billion for the expansion of various entitlements, including $20 billion for a Medicare prescription drug benefit.

9. James Horney, “Domenici Budget Resolution Would Use 98 Percent of Projected Non-Social Security Surpluses for Tax Cuts,” Center on Budget and Policy Priorities, March 29, 2000, p.1

10. Frank Wolfe, “Lott: Defense Will Get Needed Emergency Funds In Normal Process,” Defense Daily, March 29, 2000, p. 6.