Skip Navigation

Reducing the Deficit: Spending and Revenue Options March 1997

National defense spending, though reduced from Cold War levels, remains one of the larger categories of federal spending. Spending for national defense (budget function 050) represents about one-half of all discretionary outlays--that is, spending that the Congress provides through the annual appropriation of funds (see Figure 2-1). But it is only about one-sixth of all federal spending, a far smaller percentage than in years past. In 1997, outlays for national defense are estimated to be $266 billion out of a discre-tionary total of $547 billion (see Table 2-1). Spending for national defense embraces not only the Department of Defense's (DoD's) budget but also that portion of the Department of Energy's budget that funds the production, support, and management of the nation's stockpile of nuclear weapons (including environmental cleanup).
 
This chapter also looks at spending for international affairs, a separate budget category (function 150) that covers both foreign assistance and the conduct of international relations. International affairs is a much smaller budget category than national defense, with discretionary outlays of about $19 billion in 1997.


The National Defense Budget

The defense budget supports national security in several ways. It provides pay and benefits for U.S. military forces; supplies the pay of civilian workers whosupport the military's operations, as well as other costs for operations and training; and pays the operating costs of the hundreds of military bases and facilities here and abroad. It funds not only procurement of new weapons and equipment to keep military forces at the forefront of technical capability but also the research that creates many of those technical leaps.

Size and Structure of U.S. Military Forces

One aim of U.S. national security policy is to maintain military forces that are powerful enough to deter potential adversaries from attacking the United States or its allies and to defeat them, should deterrence fail. The collapse of the Soviet Union and the Warsaw Pact removed the single greatest military threat to the United States and its allies in Europe and the Pacific. Since then, military and civilian leaders have sought to recali-brate the military threat the United States faces and the size and number of U.S. military forces appropriate to counter that threat.

The first of those reviews resulted in the Base Force Plan of the Bush Administration. That plan reduced the overall size of the Army and established an enhanced corps of ground forces to respond rapidly to military conflicts. Reductions in Air Force wings and Navy ships, though significant, left forces sufficient to maintain forward presence and to deploy forces quickly in response to crises.

In 1993, the current Administration initiated a broad review, termed the Bottom-Up Review, of the national security situation and U.S. military strategy and forces. That review replaced the Cold War threat of the Soviet Union and its Warsaw Pact allies with a scenario in which the United States would fight two conflicts with regional powers (such as Iraq) nearly simultaneously. Relying on the findings of the Bottom-Up Review, the Administration established requirements for forces that were 30 percent to 40 percent below those of the Cold War era. The process of reducing military forces to those new levels will be nearly complete by the end of 1997.

In response to the Congress's direction, another major review of strategy and forces--the Quadrennial Defense Review--is under way. That review is envisioned as a periodic reassessment of military strategy and force structure. The Department of Defense is engaged in the first step of the process--preparing a report that the Secretary of Defense must transmit to the Congress by May 15, 1997. At that time, an independent commission of experts, named by the President and approved by the Congress, will review DoD's findings and produce its own report by December 1, 1997. Once that report is available, the Congress and the Administration should have a better basis for setting the size and determining the composition of U.S. military forces.
 
Strategic Forces

Strategic forces are much reduced from Cold War levels. Since 1990, the United States has nearly halved its force of land-based intercontinental ballistic missiles, reduced the number of bombers committed to strategic missions and taken them off alert status, and reduced the number of submarine-based missiles from 584 to 408 (see Table 2-2). Most strategic analysts believe that those forces still provide a robust deterrent to a direct nuclear attack. All parties have now ratified the first Strategic Arms Reduction Treaty (START I). In 1995, the Congress ratified START II, which would commit the United States and Russia to make even larger reductions in strategic forces, but Russia's parliament has not yet done so. Four options in this chapter

relate to strategic forces. Option DEF-01 examines the savings that would result from accelerating planned cuts in U.S. strategic forces, and DEF-02 looks at an early cancellation of D5 missile purchases. Option DEF-03 would reduce the scope of the Department of Energy's program for maintaining the stockpile of nuclear weapons. And DEF-04 would limit efforts to build theater missile defense programs.
 
Conventional Forces

In its Bottom-Up Review, the Administration determined the conventional forces it believes the United States would have to deploy to win two nearly simultaneous regional conflicts. Those forces include 10 active Army divisions supplemented by 15 Army National Guard brigades and other reserve combat and support units. The eight Guard divisions that represent the largest component of reserve combat units were not allocated a role in meeting the two-conflict threat; instead, they were defined as the nation's strategic reserve. The Navy will retain 11 active aircraft carriers plus one reserve carrier for training and local contingencies. And the Air Force will keep 13 active tactical fighter wings, with another seven in the reserve forces. By September 1997, most conventional military forces will have been cut to their target levels (see Table 2-2). Several options examine the implications and savings of further reducing conventional forces. DEF-06 would reduce the number of carriers by two and the number of carrier air wings by one. DEF-11 would reduce Air Force tactical air wings to a total of 18, two less than the force level in the Bottom-Up Review. DEF-17 would eliminate two of the 10 active divisions, and DEF-18 would cut four of the eight Guard divisions.
 
Modernization

Spending for weapon systems in recent budgets is down more than 50 percent from Cold War levels. The deep cuts DoD made in its forces have enabled it to sharply reduce purchases of ships, planes, and fighting vehicles without creating a shortage of equipment. DoD leaders, however, have identified a need to resume purchasing many of those items beginning around the end of this decade. General John Shalikashvili, Chairman of the Joint Chiefs of Staff, has called for procurement budgets of $60 billion a year, 55 percent more than the Administration requested for 1997. Several of the options presented in this chapter would either defer or cancel some of the programs responsible for that projected increase. DEF-05, for instance, would cancel the Navy's New Attack Submarine program, and DEF-07 would slow the Navy's purchases of destroyers. DEF-12 and DEF-19 would cancel the Air Force's F-22 fighter acquisition program and the Army's Comanche helicopter program, respectively.

Although procurement has fallen sharply, DoD acquisition managers have followed a policy of maintaining a relatively high level of research and development (R&D) spending. That policy was seen as key to keeping the United States at the technological forefront for future weapons while production of earlier generations of weapons was coming to a close. But the Administration's budget projections for the rest of the decade suggest that R&D spending will decline considerably through 2000 as several major weapon systems currently in development move to the procurement phase. That shift, together with a boost in procurement spending in future budgets, will return R&D spending to close to its historical level of about one-fourth of procurement spending. DEF-20 would reduce spending for dual-use technology programs.

The Bottom-Up Review also identified a need to improve the military's ability to deploy forces rapidly to two theaters. That review called for enhancing the strategic mobility forces by adding more Air Force airlift aircraft and Navy and Ready Reserve Force cargo ships and by prepositioning material abroad and at sea. DEF-13 identifies an alternative to the Administration's plan to purchase the C-17 airlifter, and DEF-14 would slow DoD's efforts to modernize tactical airlift forces.
 
Roles and Missions

The Commission on Roles and Missions of the Armed Forces was established by the Congress in 1994 to review all aspects of the organization of the Department of Defense to identify opportunities to consolidate activities and improve efficiency. It looked at such matters as the duplication of military missions among the services and the possible integration or privatization of support activities such as training, maintenance, and intelligence gathering. Some of the options described in this chapter are drawn from previous CBO analyses of the issues related to the services' roles and missions. DEF-16, for instance, would make the Army responsible for close air support, eliminating an Air Force mission. DEF-27 would combine the Army National Guard and the Army Reserve.

Pay and Benefits of Military Personnel

Options DEF-21 through DEF-27 present ways to reduce spending for military personnel. Some of those options would reduce elements of military compensation, including the housing allowance (DEF-22), the subsistence allowance (DEF-23), and special bonus pay for nuclear-trained Navy officers (DEF-25). Another option would reduce the number of military personnel needed to staff the forces and activities of the military (DEF-21). DEF-24 looks at a cheaper way to supply the military with new officers.

Health care is a $15 billion item in the defense bud-get--roughly $5 billion to pay uniformed medical personnel and $10 billion to operate military health care facilities and pay for care provided by the private sector. Much of that spending is for the care of the dependents of active-duty personnel as well as retirees and their families. Four options (DEF-28 through DEF-31) address the military's spending for health care. (For options dealing with veterans' benefits--a separate budget category from national defense--see Chapter 4.)
 
Operation and Maintenance

Operations consume the largest share of the defense budget and may offer the greatest opportunities to achieve efficiencies without cutting military capability (see Table 2-1). CBO's options examine ways to consolidate activities among the military services or to turn activities over to the private sector. The options focus on professional military education (DEF-33), military housing (DEF-35), and commissaries and exchanges (DEF-36 and DEF-37). Those options have little direct connection to the readiness of military forces: instead, they are oriented toward achieving efficiencies in the infrastructure that supports the forces.


The International Affairs Budget
 
The international affairs budget for 1997 totals $18.3 billion in discretionary budget authority and results in outlays of $19.3 billion (see Table 2-3). Those outlays represent 1.2 percent of total federal outlays and 4 percent of total discretionary outlays in 1997. Altogether, international programs consume about 0.25 percent of the nation's gross domestic product.

International affairs spending has risen and fallen in waves that reflect the relative emphasis on using foreign assistance to promote U.S. security and to enhance world stability (see Figure 2-2). In 1962, for instance, spending for international affairs totaled $5.5 billion--equivalent to $29 billion in 1997 dollars. That amount represented 7.6 percent of total discretionary outlays and 1.0 percent of gross domestic product in 1962. During most of the 1960s, spending for international affairs declined both absolutely and as a share of the budget, reaching a low of $14 billion (in 1997 dollars) in 1971
.

From that level, spending rose by three-quarters in the 1970s, reaching $25.9 billion (in 1997 dollars) in 1980. Part of that increase reflected much greater levels of economic assistance for Egypt and Israel, agreed to as part of the Camp David Accords. In the 1980s and 1990s, real spending for international affairs has fluctuated between $19 billion and $27 billion.

Options dealing with the international affairs budget are presented in DEF-38 through DEF-43. Those options cover a variety of topics, including activities of the State Department, funding for multilateral development banks, exports of military equipment, and U.S. in-formation programs abroad. Savings for each option are presented in two ways: against the 1997 level of funding for the program, and against the 1997 level of funding for the program adjusted for inflation.


How to Use and Combine Savings Estimates

The table at the beginning of each option displays the savings it would generate through 2002. To define savings, it is necessary to have a starting point. As just noted, savings for international programs are expressed either as savings from the 1997 level of spending or as savings from that level adjusted for anticipated inflation. For defense programs, savings have been computed relative to spending detailed in the Administration's plan for 1997 through 2002 (the 1997 plan), after adjusting for Congressional action on the 1997 budget.

Users of this volume may wish to combine several options into a package of deficit reduction measures. The options selected should not include those that are mutually exclusive or that may overlap, resulting in the double-counting of savings. Subject to that caution, the resulting effects on future deficits may be estimated as follows.

First, select a baseline from which to start. CBO has projected future deficits under two assumptions about overall discretionary spending: one adjusts spending for inflation, the other freezes discretionary spending at the 1997 level through 2002 (see Table 1-2 in Chapter 1). Both are based on economic assumptions consistent with balancing the budget by 2002.

Second, decide whether to include the savings (or costs) of the Administration's 1997 defense plan. Measured against the inflation-adjusted baseline, the 1997 plan generates five-year total savings of $100 billion in outlays (see Table 2-4, which shows the year-by-year details). Users of this volume who start from the baseline adjusted for inflation can, if they choose, subtract the annual savings reflected in the President's 1997 plan from the projected deficits shown in Table 1-2. (By doing so, they implicitly accept all of the Administration's policy actions that are needed to reduce spending by $100 billion.) Users who select the baseline that freezes discretionary spending at the 1997 level, however, should make a different set of adjustments to the projected deficits associated with that baseline. Measured against the frozen baseline, adhering to the Administration's 1997 defense plan will add a net amount of $1.6 billion to the deficit over five years (see Table 2-4). Although the plan's projections are lower than the baseline for 1998 through 2000, projections for the entire 1998-2002 period average slightly more than the 1997 appropriated level.

The third step in the process is to combine the additional savings that the selected options provide and then subtract the totals from the stream of deficit projections that results from the first two steps. Savings from individual options may be applied no matter which baseline concept is adopted as a starting point.

Of course, the Department of Defense's plans change from year to year. For some of the options, the Administration's new program for 1998 through 2003 (the 1998 plan) is significantly changed from the 1997 plan. Those changes may increase or reduce CBO's estimates of savings. Readers using the details of this volume to estimate savings relative to the Administration's 1998 plan should refer to the savings estimates for those options shown in Appendix A.

---