Financial crisis could put crimp in defense spending plans

Posted on Wednesday, October 8, 2008
Financial crisis could put crimp in defense spending plans
By Nancy A. Youssef | McClatchy Newspapers

WASHINGTON " With the U.S. economy in crisis and military spending at its highest level since World War II, military officials and experts are worrying that America may have to start reining in defense spending.

In the fiscal year that just ended, the U.S. spent $694.2 billion on defense, up 52 percent from the 2000 defense budget in constant dollars. (That year, the department spent $292 billion.) The fiscal 2008 total includes $514.2 billion in the defense budget and another $180 billion to pay for the wars in Iraq and Afghanistan, which have been financed through so-called "supplemental" budgets.

Eight years of borrowing to pay for the Iraq and Afghan wars, coupled with an aging baby boomer population, growing health care costs and a push to enlarge the Army, could force legislators to make tough decisions about which needs should take priority, and the next president to reassess how much the military can do.

Congress' decision earlier this month to approve a $700 billon bailout for the financial industry adds to the strain on the federal budget, and the stock market decline and the credit crunch could slow economic activity and eliminate jobs, which in turn could reduce tax revenues.

"How the U.S. government funds its military answers the question of: How committed it is to fighting these kinds of war?" said James Quinlivan, a senior military analyst and mathematician at the RAND Corporation.

The pressure is likely to be felt most acutely by the Army, the military's largest and most expensive branch, which is already strained by the war in Iraq and planning for another decade of sustained conflict. Both presidential candidates have called for more troops in Afghanistan while maintaining a substantial force in Iraq.

The Army plans to add about 30,000 soldiers by 2010, and expanding the force to 547,000 would cost at least $5 billion, according to Army estimates. Some internal estimates put the cost of repairing or replacing worn-out and damaged equipment and procuring new technology at another $150 billion a year.

"People ask me how big an Army do you need. My first question is: What do you want it to do? My second question: How much are you prepared to spend on that Army?" Gen. George Casey, the Army chief of staff, said this week. "We're looking at a decade of persistent conflict . . . . We are actively working (how to balance those needs) right now."

Since World War II, the defense budget has ebbed and flowed, reaching sudden peaks during conflict and dropping quickly after wars ended. Since 9/11, however, the budget has undergone sustained growth because there's no end in sight to the war against terrorism.

"If you are going to contemplate these kinds of wars, then the budget is not going to fall quickly again," Quinlivan said.

For the first time in modern U.S. history, the Bush administration has cut taxes in wartime, and some estimates put the final tab for Iraq and Afghanistan as high as $3 trillion, including veterans' care, pensions and interest.

"At some point, America has to confront these fiscal challenges," said Steven Kosiak, vice president for budget studies at the Washington D.C.-based Center for Strategic and Budgetary Assessments. "When? I just don't know."

Quinlivan said that if the Bush administration and Congress had raised taxes to pay for the Afghan and Iraq wars in 2007, they would have had to raise individual income and corporate taxes by about 9 percent.

Top defense officials recently have expressed concern about the growing defense budget. Secretary of Defense Robert Gates and Adm. Michael Mullen, the chairman of the Joint Chiefs of Staff, have proposed that defense spending not exceed 4 percent of GDP to assuage concerns that defense spending is out of control. But defense officials couldn't say whether that percentage covers only non-war expenses or supplemental spending, as well.

Regardless, Pete Geren, the Secretary of the Army, said that he believes Congress will continue to support the Army.

"You see increasing pressure from competing programs. It's something we have to be concerned about that puts pressure on the defense budget. But the history of the last seven years gives me confidence that when it comes to the Army budget, the Congress will hang in there with us," Geren said.

Because the wars in Iraq and Afghanistan have been fought largely by ground troops, the Air Force and Navy already have made cuts or delayed buying new ships or aircraft. Indeed, some parts of their budgets have been moved to the Army and Marine Corps.

Casey suggested that one place the Army may make cuts is by not updating some of its older equipment that was designed for Cold War conflicts.