Defense Spending and the New CBO Budget Projections for FY2020-FY2029
August 22, 2019
The CBO issued a new set of projections for the U.S. Federal budget on August 19, 2019. Almost inevitably, these estimates focus attention on the growing federal debt and deficit. They projected that,
- Deficits. In CBO’s projections, the federal budget deficit is $960 billion in 2019 and averages $1.2 trillion between 2020 and 2029. Over the coming decade, deficits (after adjustments to exclude the effects of shifts in the timing of certain payments) fluctuate between 4.4 percent and 4.8 percent of gross domestic product (GDP), well above the average over the past 50 years. Although both revenues and outlays grow faster than GDP over the next 10 years in CBO’s baseline projections, the gap between the two persists… CBO’s estimate of the deficit for 2019 is now $63 billion more—and its projection of the cumulative deficit over the 2020–2029 period, $809 billion more—than it was in May 2019.
- Debt. As a result of those deficits, federal debt held by the public is projected to grow steadily, from 79 percent of GDP in 2019 to 95 percent in 2029—its highest level since just after World War II… Taken together, other changes to the budget projections increased projected debt-service costs by nearly $0.3 trillion; $0.2 trillion of that amount is associated with the increase in projected spending stemming from the Bipartisan Budget Act.
These are important fiscal trends, as are the fact that an analysis by the Committee for a Responsible Federal Budget indicates that the CBO estimates an average rate of economic growth of 1.8 percent versus the 2.9 percent used by OMB in its budget estimates. It also indicates that that Federal debt would rise from 78 percent of the GDP to 87 percent by 2029 versus the OMB projection that it would drop to 71 percent. And, that the total deficit over the next decade would rise to $9.9 trillion, $2.7 trillion above the Administration’s estimate.
The Third “D”: Defense versus the Deficit and the Debt
These are the kind of numbers that grab both expert and media attention, and do so deservedly. At the same time, they are only part of the key trends that the CBO reported in its August 2019 update to the budget and economic outlook for 2019-2029. These trends include continuing massive shifts in the nature of Federal spending, and its impact on the U.S. economy.
They assume that mandatory spending on Social Security, health, and various forms of welfare and social services will continue to grow sharply and that the U.S. can minimize its future level of deficits and debt by sharply reducing its level of defense spending and other discretionary Federal programs – ranging from agriculture to education and beyond.
The massive impact of these assumptions on both Federal spending, and on the U.S. economy, are laid out in Figure One. The estimated actual cost in Budget Authority and Budget Outlays is shown in Figure Two.
- The data in Figure One show a drop in the economic burden from defense spending from a level of 8.4 percent of the GDP in 1969 – a key period in the Cold War—to 3.9 percent in 1994—after the break-up of the Soviet Union. The burden then dropped to 3.2 percent of the GDP today, and the CBO projects they will drop to 2.8 percent in 2029.
- These trends will steadily cut the share of defense spending out of the steadily rising level of Federal revenues that will come from a constant rise in the nation’s massive GDP. They do not, however, mean cuts in defense spending. The data in Figure Two show a slow, steady rise in defense spending from $737 billion in Budget Authority (BA) in FY2020 to $905 billion in FY2029 (23 percent rise), and from $700 billion in Budget Outlays in FY2020 to $874 billion in FY2029 (25 percent rise).
The CBO makes it clear in its analyses that it cannot predict the future, and must make its projections according to Congressional guidelines, and drawing on the current spending estimates of given Departments and Agencies.
Accordingly, the CBO projections of defense spending assume that the U.S. will not face any major new oversea contingency operations during the next decade, that the challenge of shifting back to strategic competition with China and Russia will not force major increases in future defense spending, and the perpetual under-costing of defense in DoD’s annual budget submissions will not continue – assumptions laid out in detail in other CBO projections of national defense spending.
More broadly, they assume that there will be no new budget legislation through 2029, and that no Federal action will be required to deal with a recession or civil crisis, that no change will take place in current federal medical programs or social security, and in none of the current proposals to increase civil spending in areas like education.
Given the fact that the U.S. exists in a troubled and conflict-ridden world, and that it is already clear that the 2020 election will be fought largely over domestic spending issues, none of these assumptions seem to be credible.
What is credible is that U.S. defense spending will come under steadily rising pressure from increases in mandatory spending and domestic discretionary spending, that sustaining anything like the current role the U.S. plays in international affairs will require spending that continues to be well above 3 percent the GDP and may often come closer to 4 percent . Moreover, if the debates over domestic spending and defense follow the past pattern of political compromise, either the deficit and debt will be much higher than the CBO has just projected, or the U.S. will have to make major increases in taxes and revenues .
Mandatory and Defense Spending
The CBO does project that mandatory spending will dominate all Federal spending and the Budget Outlay (BO) spending that is used to calculate the deficit and debt burden. There are problems in assessing the impact of timing shifts in mandatory spending, but if the data the CBO budget totals data are used, which adjust for time shifts and offsetting revenues, the CBO projects that:
- Total mandatory spending in BO will be $2,838 billion in FY2020, or 61 percent of $4,638 billion in total outlays including interest. Discretionary defense spending will be $700 billion, which is 15 percent of $4,638 billion in total adjusted outlays excluding offsetting receipts, and 25 percent of mandatory spending.
- Total mandatory spending in BO will be $4,454 billion in FY2029, or 64 percent of $6,997 billion in total outlays. Discretionary defense spending will be $874 billion, which is 12 percent of $6,997 billion in total adjusted outlays, and 20 percent of mandatory spending.
- Steady rises in all aspects of Federal spending will raise the total level of spending over FY2020 to FY2029. The CBO projects that total mandatory spending will be $36,306 billion in FY2020-FY2029, or 52 percent of $57,845 billion in total adjusted outlays excluding offsetting receipts. Discretionary defense spending will be $ 7,866 billion, which is 10 percent of $57,845 in total spending in BO, and 20 percent of mandatory spending.
These figures clearly reflect the growing impact of mandatory spending relative to defense spending in spite of the major increases in defense spending after FY2018, and they do not include the cost of any of the new entitlement programs now being debated in the U.S. It is important to point out, however, that some critics of current mandatory spending seem to assume that it does not include major elements of the real cost of national security.
In reality, both Figure One and Figure One sharply underestimate full level of U.S, defense spending. The trade-offs between national security and mandatory spending are not as simple as some assume.
Figure Three shows a detailed break out of the CBO projections of future mandatory spending, these numbers include the real-world additional defense cost of military retirement, of civil servant retirements in defense-related Federal programs, and the cost of Veterans programs.
Such programs scarcely dominate mandatory spending. The CBO estimates that
- Social Security costs alone will rise from $1,097 billion in BO in FY2000 to $1,820 in FY2029 (66 percent rise), and
- Estimates that Major Civil Health Care costs will rise from $1,304 billion in BO in FY2000 to $2,299 billion in FY2029 (76 percent rise), and total $17,626 billion over the decade.
- Income Security Programs are far smaller, but the projected cost will rise from $302 billion in BO in FY2000 to $357 billion in FY2029 (18 percent rise), and total $3,320 billion over the decade.
If one totals these three key areas of Federal civil mandatory spending, they will rise from $2,703 billion in BO in FY2000 to $4,457 billion in FY2029 (65 percent rise), and total $35,302 billion over the decade. They would total 89 percent of all the $39,775 billion in mandatory spending in BO during FY2020 to FY2029.
In contrast, the total cost of military retirement between FY2020 and FY2029 is $711 billion, and this is offset by $239 billion in retirement payments: a net cost of $472 billion. The impact of Veterans programs in much higher — $1,397 billion between FY2020 and FY2029 – and there is no offset.
The end result is that mandatory defense spending will total close to two trillion dollars or $1,869 billion between FY2020 and FY2029, and average close to $200 billion a year in additional military spending – even if military retirement revenues are included. (Data on defense civilian retirement costs are not estimated, only total civilian retirement costs.)
These additional costs are vital to sustaining an all-volunteer force structure, and reflect the fact that the U.S military makes extraordinary sacrifices relative to those who do not serve. They are also a minor fraction of the civil mandatory entitlement costs listed earlier. They are, however, a significant part of real-world U.S. defense spending and are an important part of the U.S. national budget.
U.S. Defense Spending Relative to Other Powers
One final point is also worth raising in assessing these estimates of U.S. defense spending. Regardless of the uncertainties and issues involved in the CBO projections, the U.S. is now spending far more than its major competitors, and potential threats. It also has allies and strategic partners with far more resources and far higher levels of spending.
Figure Four shows just how much higher U.S. spending is now than that of any of its major rivals, and Figure Two has shown that future spending is now going to be much higher. Unfortunately, there are no meaningful unclassified net assessments of comparative spending by mission or that examine the comparative efficiency of military spending in the U.S. and threat and allied countries.
The U.S. defense budget is also something of a museum piece. It only reports input costs by military service, and provides no data on the strategic allocation of money by command or mission. It is possible to assess U.S. defense spending in terms of total domestic Federal spending, but not in terms of value for money in achieving any given national security objective.
(For a full analysis of the weakness in the U.S. defense budget, and planning, programming, and budgeting system – see Anthony H. Cordesman, Shaping U.S. Strategy to Meet America's Real-World Needs, https://www.csis.org/analysis/shaping-us-strategy-meet-americas-real-world-needs, June 4, 2019)
Anthony H. Cordesman holds the Arleigh A. Burke chair in Strategy at the Center for Strategic and International Studies in Washington, D.C. He has served as a consultant on Afghanistan to the United States Department of Defense and the United States Department of State.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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