A Trillion-Dollar Defense Budget?

For the second year¹ in a row, the Biden administration released its annual defense budget request comparatively late—on March 28—about a month later than is normal practice. Last year, it released its fiscal year 2022 defense budget on May 28, 2021, later than any new administration’s first budget since the 1920s.

As a result, Congress is unlikely to pass an authorized defense budget before the start of the fiscal year, which begins on October 1, 2022. In the best-case scenario, it will pass a continuing resolution that allows the Pentagon and other agencies to spend at the previous year’s level and not fund any new programs until the second quarter of the fiscal year at the earliest. This can lead to waste and mismanagement and cause the military to lose billions of dollars in purchasing power.

When it submitted this year’s budget to Congress, the administration included a classified version² of its National Defense Strategy (NDS), as well as a classified version of the Nuclear Posture and Missile Defense reviews, both mandated by law. The administration’s elevated budget request, which is larger than any previous administration’s defense budget request, certainly is informed by these additional documents and strategy, which argue, in part, that China is the United States’ most consequential strategic competitor. Furthermore, they highlight the additional challenge of Russia’s threats, illustrated by its brutal and unprovoked invasion of Ukraine. Unfortunately, only a declassified, two-page summary of the NDS is available to the general public, which makes it hard to assess how well the strategy and budget are aligned. Moreover, the administration still has not released its National Security Strategy (NSS), which is supposed to guide the NDS.

Every administration faces challenges that are unique to each budget year. The challenges the Biden administration and Congress will face in finalizing the FY 2023 defense budget and the FY 2023 through FY 2027 defense programs, which the Center for American Progress outlined in “Questions for the Biden Administration Regarding Its Fiscal Year 2023 Defense Budget,”³ can be organized into eight major categories:

• Deciding which base amount to use in calculating the size of the increase in the top line of the FY 2023 budget
• Determining which rate of inflation to use in calculating the size of the total budget
• Determining which rate of inflation to use in deciding on the size of the annual pay raises for the 2.2 million active duty and reserve personnel and the 1.9 million military retirees
• Calculating the size of the actual increase of the overall defense budget
• Selecting the types of weapons to be built and the level of funding for the nuclear modernization program
• Determining how to modernize and grow the Navy
• Selecting the rate of purchases for the tri-service F-35 Joint Strike Fighter
• Determining additional changes to the size and distribution of the FY 2023 budget due to Russia’s invasion of Ukraine, since the budget was prepared prior to the invasion

How the Biden administration and Congress deal with these challenges will determine whether the defense budget supports U.S. national security in a cost-effective manner.

Calculate the top-line increase in the FY 2023 defense budget

The administration had to decide on the top line for the size of its FY 2023 defense budget, which includes only current Pentagon spending and excludes the U.S. Department of Veterans Affairs budget and the amortization of unfunded liabilities for military retirement and health care. The administration had to choose a base starting point: the $753 billion it originally requested for FY 2022 or the $770 billion it projected it would request in FY 2023. Alternatively, the administration could use the $780 billion that Congress authorized for FY 2022, which was $37 billion—5 percent—more than President Biden’s proposal for FY 2022 and $10 billion more than he intended to request for FY 2023.

Instead of choosing either of these base amounts in its FY 2023 budget proposal, the Biden administration requested $813 billion,⁴ which went far beyond what it proposed in FY 2022. This was a result of pressure from Congress—including from many Democrats, who objected to several of President Biden’s proposed reductions, particularly to the Navy—and the impact of inflation on pay for active duty, reserve, and retired military personnel.⁵ This is $33 billion—about 4 percent—more than what Congress approved in FY 2022 and about $45 billion—10 percent—more than the administration projected it would propose in FY 2023.⁶

Determine the inflation rate for calculating the budget

Second, the administration’s budget request assumes an inflation rate of 2.2 percent, but it is highly unlikely that the inflation rate will drop that low from its current level of at least 8 percent by October, according to retired Major General and former Director of Program Analysis and Evaluation for the U.S. Army John Ferrari. Therefore, Congress will have to add at least $75 billion⁷ to the administration’s top line if it wishes to maintain 1.5 percent real growth.

Determine how inflation will affect pay increases

The Biden administration’s budget proposes to increase pay for active duty and reserve military personnel by 4.6 percent, which was the amount specified⁸ by the Employment Cost Index as of September 30, 2021. To its credit, the Biden administration is calling for the highest pay raise in 30 years⁹ and almost double what was given last year. However, it is still significantly less than the current and projected inflation rate and will most likely be increased by Congress.

Similarly, pay for the 1.9 million women and men who have retired from the military is based on the average cost of living increase from July 2020 to September 2021—5.9 percent. However, although the administration factored this increase into its budget, 5.9 percent will be insufficient to keep up with inflation.¹⁰ Therefore, Congress is likely to increase the $50 billion that the Pentagon is already spending on these retired veterans.

Since total personnel costs already account for about one-fourth of the entire budget,¹¹ Congress would need to increase the size of the total budget or reduce funds in other areas in order to increase real pay for active duty and reserve personnel and retirees, which could affect the readiness and modernization of the force.

Determining how much of an additional increase to accept from Congress

Even if President Biden accepts a higher inflation rate for the overall budget and the size of pay raises for active duty and retired personnel, he will also have to decide whether he would accept an additional increase in the size of the budget, as he did last year when Congress added $37 billion to his proposal. Even before the Russian invasion of Ukraine, many members of Congress, including members of the president’s own party, were arguing that given the increasing capabilities of the Chinese military, a real increase from 3 percent to 5 percent above inflation¹² was needed. Assuming an inflation rate of about 7 percent and a real increase of 3 percent to 5 percent on top of that would result in an FY 2023 defense budget of more than $900 billion. This is about $150 billion—or 20 percent—more than the Biden administration requested in FY 2022 and about $100 billion¹³ more than what the administration has proposed for the upcoming fiscal year. Including the cost of aid for Ukraine following the Russian invasion could result in an FY 2023 defense budget that approaches $1 trillion.

Deciding which weapons programs to fund and which to phase out

When deciding on which nuclear programs to fund and at what pace, the Biden administration had to make two decisions: whether to continue the modernization, started under the Obama administration, of all three legs of the strategic nuclear triad—the land-based strategic missile, the submarine-launched ballistic missile, and the bomber—and whether to continue funding two new tactical nuclear weapons programs that were started during the Trump administration. In his first year in office, President Biden continued the funding for all five programs, actually increasing spending on the nuclear budget by 9 percent above Trump administration levels in the FY 2022 budget. He did this in spite of the fact that the Democratic Party platform of 2020¹⁴ explicitly said that the new nuclear weapons programs should be cancelled and Democratic nuclear strategists, such as former U.S. Secretary of Defense William Perry,¹⁵ arguing against keeping the land-based component of the nuclear triad.

In its proposed FY 2023 budget, the Biden administration does propose canceling one of the new programs—a submarine-launched tactical nuclear weapon—but funding the other—a tactical nuclear cruise missile—and all three legs of the nuclear triad. As a result, spending on nuclear weapons will increase by 15 percent in the current budget, from $43.2 billion to $51 billion. Moreover, Congress is unlikely to support the submarine-launched tactical nuclear weapon’s cancellation, which has already been publicly opposed¹⁶ by General Mark Milley, chairman of the Joint Chiefs of Staff; Admiral Charles Richard, head of the Strategic Air Command, General Tod Walters, commander of U.S. forces in Europe; and many members of the armed services committees in the U.S. Senate and U.S. House of Representatives. If the weapon’s program is restored, which is likely, it will add $10 billion to the budget by 2030.

Select a strategy for modernizing and growing the Navy

In his first year in office, President Biden’s naval strategy was to increase the size of the U.S. Navy from 296 ships to 321 by 2030 by using a “divest to invest” strategy—retiring older ships earlier and using the savings to build newer, more modern, and more capable ships.¹⁷ In his FY 2022 budget, President Biden proposed retiring 15 ships and funding eight, but Congress refused to go along with this strategy. It authorized building an additional five ships and limited the ability¹⁸ of the Navy to retire or decommission ships. In its FY 2023 proposal, the Biden administration seems to be following the same strategy that it did last year, proposing to build nine new ships but retire 24.

It is clear that the Biden administration needs a new strategy if it wishes to increase the size of the Navy to about 320 ships by the end of the decade. In anticipation of a likely negative reaction from Congress to these proposals, the Navy presented a long-range shipbuilding plan that offers three potential profiles¹⁹ on how the Navy could build a future fleet, but the size of each of these profiles depends on the funding that Congress provides.

Without a real increase in the size of its current budget, the Navy argues²⁰ it would only grow to between 305 and 307 manned ships by the mid-2030s—far below the administration’s goal. Growing the Navy to 326 ships by then would require Congress to provide an additional $75 billion in real growth over the next five years. While this would suffice to meet the administration’s original goal, it would add at least $15 billion to the FY 2023 Navy budget.

Determine the size of F-35 fighter purchases

In FY 2022, the president requested—and Congress approved—the purchase of 85 F-35 Joint Strike Fighters, different versions of which are used by the U.S. Air Force, Navy, and Marine Corps. They are all-weather, air-superiority fighters that can perform both strike and air combat missions. The three services were projected to request 94 planes for FY 2023.²¹ Instead, the administration has requested only 61 at a total cost of $11 billion. Given the maintenance and cost issues that plague the F-35 program,²² this seems like a prudent step and will allow the three services to upgrade their existing planes. However, this decrease is likely to meet resistance in Congress given the fact that manufacture of these planes affects employment in dozens of states. If Congress authorizes more than 85 F-35s, it would mean adding at least $3 billion to the FY 2023 budget.

Determine how Russia’s invasion of Ukraine might increase the size of the defense budget

In addition to providing military and economic support to Ukraine, the Biden administration has already indicated that it will permanently increase the number of troops deployed to Europe by 20,000 women and men to 100,000. This will mean that the European Deterrence Initiative will have to grow beyond its current level of $4.2 billion²³ and that the Army will not be able to reduce the size of its active force by 12,000, which it proposed cutting in order to fund its procurement budget.²⁴

Conclusion

The United States faces real-world crises, including the war in Ukraine, strategic military challenges with China, the toppling of the Afghan government in August of 2021 and subsequent return of Taliban rule, the civil war in Yemen, the presence of the Islamic State group in Syria, and the Iranian nuclear buildup. And while crises in Afghanistan, Syria, Yemen, Iran, and other countries in the region may not receive the same focus that they once did, they still pose as a critical threat to U.S. interests within the region. These and other security matters all contribute to President Biden’s expansive plans for defense spending in FY 2023 and through FY 2027. At the same time, the administration’s spending priorities have been the subject of criticism from across the political spectrum. Progressives unhappy with the administration’s first defense budget proposal, which ignored the Democratic party platform and essentially embraced Trump-era budget levels and programs, are even more unhappy that the Biden administration used the large FY 2022 budget as a base for FY 2023. And even before the Russian invasion of Ukraine, defense hawks in both parties felt²⁵ that the proposed budget was not enough to keep pace with China’s increasing military capability. They will undoubtedly use the Russian invasion to permanently increase the size of the forces and weapons deployed to Europe in order to add even more funding for FY 2023.

U.S. spending to help Ukraine—which has already reached about $60 billion²⁶—as well as the possibility of additional funds for higher pay raises; more troops, ships, planes, and tactical nuclear weapons; the European Defense Initiative; and spending adjustments to account for inflation could result in an FY 2023 defense budget of more than $1 trillion. This would be about half of what the world spends on defense²⁷—and does not even account for the $300 billion the federal government will spend on veterans and the $115 billion²⁸ it spends each year on the amortization of unfunded liabilities for military retirement and health care.

This situation leaves the Biden administration and Congress with three options: support these increases and pay for them with higher taxes, allow the deficit to grow, or make the hard choices necessary to bring the defense budget under control.