Under the CBR, funding for defense would be projected to rise by 3.5 percent in real (inflation-adjusted) terms in FY 2001, fall by 2.3 percent in FY 2002, and remain essentially flat over the following three years.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.

CBR Favors 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 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
The CBR also calls for deep cuts in discretionary spending, with all of the cuts coming out of non-defense discretionary programs.⁷ The CBR would provide $102 billion less than needed over the next five years to keep spending for these non-defense programs flat in real terms. These cuts would be used primarily to offset an expansion of benefits for Medicare ($40 billion) and in some other entitlement programs, as well as to pay for the projected increase in defense spending.

Long-Term Implications of Proposed Tax Cut for Defense
Unlike last year’s CBR, this year’s CBR projects 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, the CBR would severely constrain funding for defense, not only over FY 2001-05 period, but also in the years beyond. The $150 billion five-year tax cut assumed in 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 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 2010.⁸ In that case, assuming the administration and Congress abide by their pledge not to spend the Social Security surplus, a significant increase in funding for defense could be financed only by making deep offsetting reductions in non-defense discretionary programs, or cutting entitlement programs. Neither of these options appear to be politically realistic.

Status of FY 2000 Defense Supplemental Is Unclear
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, would be needed to cover FY 2000 costs. However, much of the $4 billion included in the House floor amendment would 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 might allow Congress to allocate a greater share of the FY 2001 defense budget to weapons procurement and R&D, areas Congress has traditionally focused upon.

It appears unlikely, however, that an FY 2000 supplemental as large as that passed by the House (which totals some $12.7 billion, including $9.2 billion for defense) will be enacted. Senate Majority Leader Trent Lott, among others, has called the House bill too costly and has blocked consideration of a similar measure in the Senate. Senator Lott believes that Congress should approve the requested level of funding for Kosovo and perhaps some additional amount of money for defense, but 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. More importantly, pressure to inflate the FY 2000 supplemental has been reduced by the inclusion of more FY 2001 funds for defense in the CBR. The recently passed conference agreement includes $3.6 billion more for defense in FY 2001 than did the version of the CBR passed by the full House on March 24th.⁹ Thus, although the precise size and timing of the FY 2000 supplemental remains unclear, it seems likely that it will include substantially less funding for defense than the version of the bill passed by the House.

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.

Source: CSBA, April 13, 2000.

1. These figures represent levels of budget authority (i.e., the amounts that may be appropriated by Congress). See the table on 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, the recently passed CBR, and the original House and Senate versions of the CBR.

2. These percentage changes from FY 2000 assume an FY 2000 defense budget of $291.2 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 of the surplus would be needed to cover the higher interest payments on the federal debt that would result from the tax cut. Under the CBR, the tax cut could reach as high as $215 billion, depending on the actual size of future surpluses.

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. 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.

9. The conference agreement on the CBR was passed by both the House and Senate on April 13, 2000. It would provide about $100 million more for defense in FY 2001 than the Senate’s version of the CBR. In turn, the version of the CBR passed by the full Senate included $4 billion more for defense than the version reported out by the Senate Budget Committee.