DoD Budget Cuts and Reality
With the Pentagon budget under the microscope, an insightful exercise is to look its admittedly huge expenditure (about the same as the gross domestic product of Switzerland) in terms of its relationship to America’s gross domestic product and where it stands in comparison to previous years. The result is rather surprising in many respects and provides some perspective that typically doesn’t appear in media coverage.
In 2012, the U.S. spend 677.8 billion on defense, which is 55.4% higher than in 2002, and about $316 billion more than in 1963. Defense spending versus non-defense spending from 1963 to 2013 is shown in Figure 1. Spending over the period peaked during the Vietnam and Cold wars, declining until shortly after the September 11, 2001 attacks, after which it dramatically increased to its highest level in 2011 and then fell off afterward. However, its position within total national cash outlays between 1950 and 2009 shows the defense budget in another light, as shown in Figure 2.
In 1954 it represented almost 70% of the federal budget and although it has risen and fallen over the years has trended downward. The 2012 defense budget was between 6 and 7 times larger than the $106 billion military budget of China and more than the military spending of the next 20 countries combined. As a percentage of GDP it was 4% in 2005, which represented a historic low since it peaked in 1944 at 37.8% of GDP. Its historical low was reached between 1999 and 2001 at 3.0%, and even during the peak of the Vietnam War in 1968 it reached 9.4%. In 2013 it is 4%.
When compared to mandatory spending that includes Social Security, Medicare and Medicaid, other entitlement programs, and interest (Figure 3) it looks truly puny. So why the feverish attention to cutting the budget of the organization whose job is to protect the nation? The simple reason is that the military “looks big”. It has big ships, big airplanes, big facilities, enormously expensive aircraft, and its own massive entitlements. And like every other agency in the public sector from top to bottom, it wastes a lot of money on duplicative activity, programs that don’t make sense, and no doubt hundreds or thousands of other things.
As former Secretary of Defense Robert Gates said in 2011: “This department simply cannot risk continuing down the same path – where our investment priorities, bureaucratic habits and lax attitude towards costs are increasingly divorced from the real threats of today, the growing perils of tomorrow and the nation’s grim financial outlook.” Gates had proposed a budget that would cut the cost of many DoD programs and policies, including reports, IT infrastructure, fuel, weapon programs, its bloated bureaucracies, and personnel.
Examples of DoD spending blunders include spending $681,387 on a program conducted by the Air Force Office of Scientific Research, which confirmed that men bearing firearms appear taller, stronger, and manlier. The same office also spent $300,000 on a study that concluded that the first bird on earth probably had black feathers. DoD also sponsored the creation of an iPhone application to help people optimize their caffeine level, even though at least two similar applications were already available A failed geothermal project at the Naval Air Station in Fallon, NV, cost DoD $9.12 million, and the Office of Naval Research conducted a $450,000 study that revealed that unintelligent robots are unable to maintain a baby’s attention. And of course there are DoD’s infamous cost over-runs, with the Joint Strike Fighter leading the way and followed by many others.
However, it is far from alone in wasting taxpayer dollars. The Social Security Administration’s 2011 Performance and Accountability Report found $2.11 billion in overpaid Social Security benefits and that it overpaid old-age, survivors, and disability insurance benefits by $934 million in fiscal year 2010 alone. In 2010, 117,000 people received $850 million in cash benefits by double-dipping into Social Security’s disability insurance and the federal unemployment insurance programs.
Mississippi improperly spent about $7.1 million in federal highway safety funds between 2007 and 2010, and in the same year $6 billion – 17% of federal user fees -- were diverted from highway and road projects to pay for mass transit, even though transit accounted for only about 1% of the nation’s surface travel. Poor oversight at the Federal Highway Administration allowed state officials in Florida, Michigan, and Pennsylvania to pay $125.6 million in highway repair stimulus money to contractors without proof that the work was done correctly or even completed.
A 2012 report from the Treasury Inspector General for Tax Administration identified $757 million in fraudulent tax refunds to prisoners in 2010, poor oversight allowed more than 1,000 Pennsylvania prisoners to collect weekly unemployment benefits over a four-month period that cost taxpayers $7 million. In 2012, the Department of Agriculture spent $300,000 to promote caviar produced in Idaho and the FCC spent $2.2 billion in 2012 providing phones to low-income Americans—up from $819 million in 2008 -- and then found out that 41% of the six million recipients were either ineligible or had not even proved their eligibility. Since 1998, nuclear power companies have paid a nuclear waste disposal fee to the Department of Energy even though it has not put any waste into long-term storage and after 14 years of lawsuits in 2013 it reimbursed several companies $160 million.
The United States Postal Service lost $15.9 billion in 2012 although career employees and postal support employees all got raises. The Office of Personnel Management reported that the federal government paid more than $156 million in 2011 to employees working as representatives for government unions. The U.S. Secret Service spent $23 million to buy new luxury parade limousines without competitive bidding and the White House is preparing for a $376 million renovation and plans to construct a second Oval Office for the President to use during the renovation. And last (but far from all), the General Services Administration’s poor oversight of 33 courthouse construction projects between 2000 to 2010 cost taxpayers $835 million in extra construction costs.
Looking at the proposed effects of the sequester, it’s difficult not to conclude that DoD is getting the short end of the stick. Under sequester, between 2013 and 2023 spending on defense will be reduced by $440 billion or 50% of the total reduction, while mandatory spending (Medicare, Medicaid, and Social Security) will be cut by $160 billion or 18.2%, and nondiscretionary spending will be cut by $280 billion or 31.8%.
Interestingly enough, DoD also generates a considerable amount of annual revenue from overseas sales, which in fiscal year 2012 was more than $65 billion representing 75% of the global arms market. It is predicted to increase substantially in coming years. In recent years, according to a report in the New York Times, it has literally skyrocketed, dwarfing Russia and China, as shown in Figure 4.
We just thought you should know.