As President Joe Biden finalizes his defense budget for fiscal year 2023 and his defense program for fiscal years 2023–2027, he needs to address seven core issues: deciding on which base to use in calculating the size of the total budget; which rate of inflation to use in deciding on the budget size and for the annual pay raises for active-duty and retired personnel; the size of the increase for the overall budget; whether to reprogram or eliminate the funds allocated in the fiscal year 2022 budget to support the war in Afghanistan; the level of funding for the nuclear modernization program; and the strategy for expanding the size of the U.S. Navy. How Biden handles these issues will have a significant impact on U.S. national security; on the federal budget deficit; on whether congressional Republicans will support his domestic programs regardless of the size of the deficit; and on his legacy, as a president who dealt efficiently and effectively with the nation’s national security, health, social, and economic challenges in unprecedented times.
Moreover, given the slim Democratic margins in the House of Representatives and Senate—and the upcoming midterm elections—the administration walks a tightrope in its budget priorities. The fiscal year 2023 defense budget and program could very well be President Biden’s last chance to significantly reshape U.S. national security policy.
7 core issues the Biden administration must address
On his top line—the size of his fiscal year 2023 defense budget—President Biden must decide if he will use as a base the $753 billion he proposed for fiscal year 2022. The $753 billion amounted to an increase of $12 billion, or 1.6 percent, over the fiscal year 2021 budget—the last complete budget of the Trump administration. Alternatively, the Biden administration could use $778 billion—which Congress approved in the National Defense Authorization Act (NDAA)—as the base for his defense budget. The congressionally approved budget was $37 billion, or about 5 percent, above the fiscal year 2021 budget level. In real terms, Biden’s initial proposal essentially represented a level budget, while the NDAA proposal represented a real increase of about 4 percent.
After deciding on the base, the Biden administration must address which rate of inflation it will use. The administration could decide to maintain the current level in real terms, as it did last year, or provide a real increase, as Congress did last year. Due to the wide-ranging harms and spillover effects of the COVID-19 pandemic, the yearly inflation rate in January 2021 was 7 percent. Even with no real growth, a 7 percent increase above the amount Biden requested for fiscal year 2022 would mean a fiscal year 2023 budget of about $800 billion, while using the NDAA level as a base would result in a budget of approximately $830 billion. Both these amounts would be higher than Biden’s projected spending from last year on the U.S. Department of Defense for fiscal year 2024.
In addition to determining the overall inflation rate to use, the president must decide on the rate to increase military active-duty and retired pay. The basis for raising active-duty pay is the Employment Cost Index (ECI) as of September 30, 2021—4.6 percent, compared with 2.7 percent one year ago. This would be the highest raise in 30 years. For retired pay, the basis is the average of the cost-of-living increases from July to September 2021, or 5.9 percent. The Biden administration, or any administration for that matter, is not bound by law to implement these levels, but most administrations do. In addition, given the changes to inflation since September 2021, there may be an argument that the administration should provide raises above the 4.6 percent and 5.9 percent levels.
Since pay and benefits consume such a large portion of the overall budget, how much Biden raises them will have a significant impact on the size of the total budget and on the amount that will be left for investment in current nuclear and conventional procurement and research programs.
After the administration decides on the base raise, it must determine if it will increase the budget by just enough to keep pace with inflation, or if it will accept a real increase of 3 percent to 5 percent that many in Congress—including 26 Democrats and all the Republicans on the House and Senate Armed Services committees—are saying is necessary to keep up with the increasing threats from Russia and China. Increasing the budget by 3 percent or 5 percent in real terms with an inflation rate of 7 percent, and using the NDAA as a base, will result in a fiscal year 2023 defense budget of about $870 billion—$100 billion more than the amount Biden requested one year ago.
Now that the United States has completely withdrawn its forces from Afghanistan, Biden must also determine if he will subtract that total cost of operations from the baseline budget, which the administration uses to calculate real growth. In the fiscal year 2022 budget, the Biden administration had projected that it would spend $8.9 billion for operations in Afghanistan. Subtracting this from the NDAA budget level would result in a fiscal year 2022 budget of approximately $770 billion.
The Biden administration will also need to decide if it will make any changes in the level of funding for nuclear weapons after its completion of the Nuclear Posture Review, which is scheduled to be finished before the administration sends its fiscal year 2023 budget to Congress. In last year’s budget, Biden did not act on his campaign pledges and the Democratic Party platform, which called for reducing overreliance and excessive dependence on nuclear weapons. Instead, he embraced Donald Trump’s proposal to rebuild and modernize all three legs of the nuclear triad, at a cost of $1.7 trillion, and funded several new tactical nuclear weapons, including the low-yield nuclear cruise missile and the low-yield warhead for the submarine-launched ballistic missile.
The Democratic Party platform characterized the Trump administration nuclear proposal as unnecessary, wasteful, and indefensible. Moreover, when Biden was running for president, he pledged to dismantle the U.S. commitment to increasing the role of nuclear weapons—and as vice president actually advocated a “no first use” policy.
Many of his supporters had hoped that Biden’s pledges would lead to his cutting back or even eliminating the land-based component of the nuclear triad, which will cost $264 billion. This position has been advocated by, among others, former Secretary of Defense and nuclear expert William Perry and current House Armed Services Committee Chair Adam Smith (D-WA). There are currently no indications that the Nuclear Posture Review will make such a recommendation; according to nine current and former officials, it is not expected to recommend deep cuts to multibillion-dollar plans to build new intercontinental ballistic missiles, nuclear-armed submarines, and stealth bombers.
The most likely cuts are canceling the three tactical nuclear weapons programs, which are not part of the strategic nuclear triad, namely, a new nuclear-armed cruise missile now in the research phase; retiring a Cold War-era thermonuclear bomb; and removing a new low-yield warhead that the Trump administration deployed on submarines.
Finally, the Biden administration must decide if it will continue its “divest to invest” strategy for U.S. naval forces as well as the goal for the ultimate size and composition of the fleet. In his fiscal year 2022 request, Biden proposed decommissioning 15 ships, including seven cruisers and four littoral combat ships, and building only eight—far less then were funded in fiscal year 2021. Congress not only authorized an additional four ships but also limited the ability of the Navy to decommission ships. It will allow the Navy to retire ships early only if the secretary of the Navy signs a waiver that certifies the ship cannot be operated or maintained at a reduced operating status; is not required to support the National Defense Strategy or the operational plans of any combatant commander; and cannot be transferred to the U.S. Coast Guard.
In light of these changes, Biden will have to decide whether to increase his goal for expanding the Navy from its present level of 296 ships to 321 by 2030—and if he does, he will need to decide whether to take the funding from the other services.
How President Biden handles these issues will not only have a significant impact on U.S. security and economy but also reveal a great deal about what he values in terms of national defense priorities. As Biden himself said prior to becoming president, “Don’t tell me about what you value. Show me your budget, and I will tell you what you value.” The release of the administration’s defense budget in the coming months will make clear what these values and priorities are.