defence Cuts Will Make Or Break A Super Committee Budget Deal


Photo: Wikimedia Commons

Like the recent earthquake, the Budget Control Act of 2011 left Washington shaken and completely confused, the epicentre being the Department of defence. While some are saying that the Super Committee will be able to reach a deal and cut the additional $1.5 trillion (half from defence), others are not so confident there will be any agreement, resulting in automatic caps for the next nine years. Either way, defence spending will make or break a super committee budget deal.

Truthfully, Congress has a better chance of wilfully trimming the budget at the Super Committee stage because they have more tools to orchestrate a reduction.

Even if they deadlock, they’ll push through artificial savings mechanisms, anything to merit a Mission Accomplished banner.  

Medicare doc fixes are an example of such “solutions”. Though Congress’s intention was to curb Medicare spending, they came up with an unworkable formula that has now resulted in temporary increases and extensions of existing physician reimbursement rates, all in an attempt to circumvent a long-term solution.

Applying this to what Congress may do with defence spending, a successful deal may be nothing more than a tacit convention of today’s culture on Capitol Hill, do anything to avoid Armageddon.

And some do consider the trigger provision of the bill to be deadly.  Secretary Leon Panetta even called it the ‘doomsday mechanism’.   

Under sequestration, or the trigger, defence cuts are still a variable certainty. We simply do not know how bad it is. It all boils down to the language of the bill. Here’s why:

  1. The bill does not organise any of its spending requirements against any baseline.
  2. Positive numbers (discretionary spending caps) without context forces you to make arbitrary assumptions.
  3. No analyst can come up with a number that is reasonable/unreasonable.

The question on everyone’s mind: What on earth do we base these numbers against? The President’s request in February? The President’s April modification? CBO’s baseline? The DoD’s ‘Green Book’ estimates? Using any of these assumptions, an analyst can show a range of reductions in the base defence budget.  Over a 10-year period, the difference can be up to $150 billion, depending on what baseline you use. With a range like that, no one knows what to believe. Congress was smart.

The bill is also legally provocative in that, if the Committee fails, it changes its basic definitions for the categories of spending that must be cut.   At the Committee stage, defence cuts are represented under the ‘security category’.  Under sequestration, the now ‘revised security category’ is defined as “discretionary appropriations in budget 050”. Granted that function 050 represents national defence spending, it excludes a particular area of spending that, previously on the table, is now off limits: veterans’ benefits and services.  Bravo, Congress.

While function 050 covers the pay and benefits of active, Guard, and reserve military personnel, it does not appropriate money towards programs of the Department of Veterans Affairs (VA), including veterans’ medical care, compensation and pensions, education and rehabilitation benefits, and housing programs. This is all covered by function 700, out of which 90 per cent of spending pays for veterans’ health care.  Golden rule in Washington: cutting pay/benefits for veterans is politically lethal. 

The Super Committee could have been designed to fail.  With veterans’ benefits off the table and immeasurable caps on national defence, Congress would ultimately have to (gasp) raise taxes.  Or maybe they do succeed and the Committee schedules a series of cuts that will or will never happen. 

In either case, the after effects of the Budget Control Act of 2011 are unknown.  However, if we look to Mother Nature, we do know that earthquakes can have large aftershocks, and in some cases, they can last for years. 

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.