Super Committee Fallout and the Implications for Defense
December 2, 2011
The “Super Committee” did not produce any plan for deficit reduction, setting in motion mandated cuts under sequestration. How did we get here? What happens next? What does it mean for the Department of Defense?
Q1: How did we get here?
A1: As the debt ceiling deal was reached in early August, congressional leaders came to an 11th-hour compromise that would allow the government to continue to borrow money, but also provide first steps and a roadmap for reducing the deficit. This agreement, the Budget Control Act, increased the debt ceiling based on three important provisions to reduce growth in the national debt. The first provision was a set of discretionary spending caps, which limit defense and nondefense spending for the next 10 years (through 2021). These spending caps reduce the Department of Defense (DoD) budget over the 10-year period by approximately $450 billion, a 7 percent decrease. These caps are now in place and the FY 2013 budget proposal will reflect them early next year. The second provision created a bipartisan Joint Select Committee on Deficit Reduction, the “Super Committee,” tasked with finding at least $1.2 trillion in savings through 2021. To force action, the third provision set up a fail-safe mechanism called sequestration. These automatic cuts take effect only after the Super Committee failed to reach an agreement on deficit reduction by the November 23 deadline. The deadline for the Super Committee to present a plan to Congress came and went without a single dollar of deficit reduction coming from the committee, officially triggering the sequestration process.
Q2: What does sequestration mean for the Department of Defense?
A2: The sequestration process created by the Budget Control Act initiates automatic spending cuts equal to the $1.2 trillion of savings required of the Super Committee. These cuts are split equally between defense and nondefense spending and go into effect January 2, 2013. This has led to public statements of $600 billion in defense cuts, but since money cut from the budget substantially lowers the government’s interest payments, the actual amount that would be cut from the defense budget is $492 billion from 2013 to 2021, evenly divided at about $55 billion per year. The total reduction in the defense budget over 10 years, including the $450 billion in Budget Control Act caps, the $492 billion in sequestration cuts, and additional cuts of about $39 billion allocated by the White House, add up to a total reduction of about $980 billion. While this is certainly a lot of money, it represents approximately a 15 percent reduction below the baseline 10-year budget provided by the Congressional Budget Office. It is also important to note that war funding for Iraq and Afghanistan provided through the Overseas Contingency Operations appropriations is exempt from the caps and cuts listed above.
Secretary of Defense Leon Panetta has decried the effect these across-the-board cuts would have on national defense, calling them “devastating,” a “doomsday” scenario that “results in hollowing out the force.” If implemented, sequestration will certainly have a substantial impact on DoD and the military, particularly in the near term. Indeed the part of sequestration most inimical to DoD is that the cuts are applied evenly across the period, meaning that $55 billion would have to be cut below the caps immediately in 2013, while the military is still involved in Afghanistan. Short-term cuts in defense are extremely difficult to achieve, as many of the cost-cutting measures available to DoD, such as troop reductions and base closures, are impossible to implement quickly. This means that procurement of weapons systems and research and development programs would likely take the biggest hit in the short term. This is most problematic since we have a lot of aging hardware that needs to be replaced, and the interruption or delay of procurement programs substantially inflates costs in the long run.
Despite the outcry from the Pentagon, the total level of these cuts is less than catastrophic. Even under sequestration, the DoD budget in 2013 would be approximately equal to the base budget in 2007 (adjusted for inflation) and well above the low points of defense spending in the late 1990s. Furthermore, the 15 percent decline in the budget falls significantly short of the kind of defense budget cuts seen in the past. After the Korean War, the defense budget fell by 20 percent, and during the drawdowns after both Vietnam and the Cold War, defense budgets fell by over 30 percent. A bigger challenge comes from the timing of the cuts; under sequestration, cuts are deeper in 2013 than in later years, instead of having cuts that increase over time. Cuts that increase over time would allow the Pentagon time to define and move toward new goals.
Q3: What happens next?
A3: While sequestration was officially “triggered” by the failure of the Super Committee, the automatic cuts don’t actually go into effect until January 2, 2013. Congress theoretically has until then to change the law. This could lead to the conclusion that the November 23 deadline never had the urgency needed to drive the deficit-cutting process. However, DoD will begin taking actions in advance of the deadline, perhaps as early as next June or July. Congress is unlikely to act to change sequestration by that time. In addition, President Obama has said, “I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending.”
Q4: Where does Congress go from here?
A4: The pressure is still on to prevent the automatic cuts from being implemented in 2013. This could be accomplished by simply repealing or changing the Budget Control Act, but President Obama’s veto threat makes that hard. Even with pressure to avert sequestration, the path to a budget is harder now. First, the failed Super Committee process was endowed with certain procedural protections to encourage a deal, including expedited voting by the broader Congress and proscriptions against amendments or a filibuster. Second, 2012 is a presidential election year. Enacting bipartisan legislation can be exceedingly difficult in election years, as legislators tend to harden their ideological positions to appeal to their voter base. Thus, fights over tax increases or entitlement programs are likely to grow more acrimonious.
That being said, the automatic cuts are far from a foregone conclusion. Sequestration is simply the result of a law, and laws are always subject to change. Congress has tried to legislate long-term budget levels before, including through sequestration (e.g., the Balanced Budget and Emergency Deficit Control Act of 1985), but each time, the original law has not lasted long. Nevertheless, over the coming months, we are likely to see discussions to revisit recent deficit reduction plans, such as the Bowles-Simpson Commission, the Domenici-Rivlin Commission, and the Senate’s Gang of Six proposals. We may see new plans that attempt to find a compromise that would meet the $1.2-trillion reduction requirement. A smaller deal could also get passed that would reduce the size of automatic cuts required by sequestration. After the November 2012 elections, the lame duck Congress could also present an opportunity to bypass sequestration, potentially through trade-offs that include a deal regarding the Bush tax cuts, which expire at the same time that sequestration goes into effect.
Nonetheless, the Department of Defense would benefit from additional preparation for the possibility of sequestration beginning in 2013. While some budget items could be shifted to war funding in the near term, many difficult decisions will still need to be made. Indications from the Pentagon suggest that it is not preparing for such an eventuality, but deep cuts are still very much in play. Perhaps the most overlooked fallout from the Super Committee’s failure is uncertainty. For DoD, uncertainty means not being able to construct the Future Years Defense Program (FYDP), which outlines the budget for the next five years and charts a course for the military’s future. Without a realistic FYDP, DoD cannot manage itself as effectively.
On balance, then, Congress needs to wrestle with the impact of sequestration without the benefit of DoD analysis to illuminate that impact. As the debate on sequestration moves forward, it will be in parallel with congressional action on DoD’s FY 2013 budget request, a proposal that will not include sequestration. We will learn more by watching this dual process as it plays out next year.
David Berteau is senior vice president and director of the International Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ryan Crotty is a research associate with the CSIS Defense-Industrial Initiatives Group.
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