Secretary of Defense Leon Panetta speaks to pilots during flight operations. (Photo credit: Official U.S. Navy Imagery)
Last night, at the final Presidential debate, President Obama and Mitt Romney discussed many topics of relevance to America?s place in the world. But there?s one I want to highlight: how our government?s determination to increase its spending on health care will necessarily require draconian cuts to our defense budget. Whether you think that military spending is a good or a bad thing, you should be aware of the math.
(DISCLOSURE: I am an outside adviser to the Romney campaign on health care issues. The opinions contained herein are mine alone, and do not necessarily correspond to those of the campaign.)
Moderator Bob Schieffer?who did an excellent job?asked a very important question, when he said: ?Governor, you say you want a bigger military. You want a bigger navy. You don?t want to cut defense spending. What I want to ask you?we were talking about financial problems in this country. Where are you going to get the money??
More health spending equals less defense spending
Here?s what you need to know about our rapidly deteriorating fiscal situation. It?s entirely driven by health care spending. In 1972, the federal government spent 6.7 percent of gross domestic product on defense, 1.1 percent on health care, and 1.3 percent on net interest payments.
In 2012, the federal government will spend 4.2 percent of GDP on defense, 5.4 percent on health care, and 1.4 percent on interest. By 2042 according to the Congressional Budget Office?s alternative scenario, we will spend 11.2 percent of GDP on health care and 11.8 percent on interest: 3.4 times what we spend on those two categories today.
There is simply no way that we can maintain our military presence around the world under such circumstances. I?ve posted a chart above that illustrates what the CBO projects for health care and interest spending under its alternative scenario.
CBO doesn?t publish its projections for defense spending past 2022, so I assumed that defense spending remains constant at 3.6 percent of GDP until 2042, when the CBO stops forecasting interest payments. After 2042, I assume that we default on our debt, and that defense spending decreases to compensate for increased health care spending, until it can go no lower.
These are generous assumptions on my part. What?s more likely is that defense spending will continue to decrease in the near term, in order to pay for more and more health care.
Reform of health-care entitlements is vital to national security
At last night?s debate, Romney made exactly the right point: that we need to rein in health-care spending in order to maintain some semblance of a functioning military. ?You look at how we get to a balanced budget within eight to 10 years,? said Romney. ?We do it by reducing spending in a whole series of programs. By the way, number one I get rid of is Obamacare. There are a number of things that sound good, but frankly, we just can?t afford them. And that one doesn?t sound good and it?s not affordable. So I?d get rid of that one from day one.?
Now, it?s important to point out that the CBO projects that Obamacare is deficit neutral, because its 1.9 trillion in new spending over the next ten years is balanced out by 1.2 trillion in new taxes and $716 billion in Medicare cuts. But CBO?s projections for the law have worsened over time. The principal reason for this is that health care spending grows at a faster rate than the economy. Tax revenue, on the other hand, is utterly dependent on economic growth. Hence, so long as health spending grows at a faster rate than the economy, tax revenue will never keep up.
This is why Romney has laid out a thoughtful approach to Medicare and Medicaid reform. ?Number two,? he said last night, ?we take some programs that we are doing to keep, like Medicaid, which is a program for the poor; we?ll take that healthcare program for the poor and we give it to the states to run because states run these programs more efficiently. As a governor, I thought please, give me this program. I can run this more efficiently than the federal government and states, by the way, are proving it.?
Obama explicitly favors more entitlement and less defense spending
The choice between our military and our health-care entitlements is not hypothetical. As Bob Woodward documents in his new book, The Price of Politics, the Obama administration explicitly decided to spare health-care entitlements, and gash defense spending, as a political strategy.
?[White House budget chief Jack] Lew, [Legislative Affairs director Rob] Nabors, [National Economic Council director Gene] Sperling and Bruce Reed, Biden?s chief of staff, had finally decided to propose [requiring] a sequester with half the cuts from Defense, and the other half from [non-entitlement] domestic programs,? writes Woodward. ?There would be no chance the Republicans would want to pull the trigger and allow the sequester to force massive cuts to defense.?
The debt-limit agreement that came out of these negotiations reflected Democratic spending priorities, because Republicans focused on holding the line on tax increases. The Budget Control Act?s sequestration process bars any changes to Medicaid spending, and narrowly channels Medicare spending reductions into the Democrats? favorite gimmick?more reimbursement cuts?instead of allowing for the kinds of structural changes that would make Medicare more efficient without harming seniors? benefits.
Defense hawks of both parties need to support entitlement reform
Not all Democrats favor less military spending. Last week, President Obama?s Secretary of Defense, Leon Panetta, was in Virginia warning that the Budget Control Act?s automatic defense cuts would devastate the U.S. military. He testified last year that, under these cuts, ?we would have to formulate a new security strategy that accepted substantial risk of not meeting our needs.?
It?s worth pointing out, too, that not all Republicans favor giving the military a blank check. There is significant waste in the defense budget, and it will be important for Republicans to be fastidious about trimming the fat so that important military priorities can be preserved.
But Republicans have at least proposed a solution to our fiscal conundrum. Democratic hawks, by contrast, have aided and abetted an irresponsible expansion of our government?s health care commitments. As John F. Kennedy, a great Democrat, once put it, ?to govern is to choose.?
Follow Avik on Twitter at @aviksaroy.
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