Why the Budget Deal Is Good News for Defense—with One Key Exception

AEI’s Elaine McCusker, former Pentagon comptroller, argues the Biden-McCarthy compromise is a positive sign, but there’s work to be done.

With a debt ceiling deadline looming, lawmakers are currently considering a negotiated deal that would stave off default. In this op-ed, Elaine McCusker, a former Pentagon comptroller, argues the deal is a good compromise—mostly.

The agreement reached by President Joe Biden and Speaker of the House Kevin McCarthy over the Memorial Day weekend to increase the debt limit and cap discretionary spending is a net positive and should be passed. But after it is, lawmakers must immediately address its one key flaw: It does not provide enough funding for defense.

Let’s start with three reasons why it’s good news:

First, it demonstrates that compromise on complicated issues is still possible. Second, it removes arbitrary requirements linking defense and non-defense spending. Third, it provides some budget certainty that, in itself, leads to better programmatic decision-making and cost savings.

The United States breached the debt limit in January [PDF], but the months-long delay in negotiations threatened a default and potentially unrecoverable damage to the nation’s economy, reputation and security. Therefore, this year’s agreement on the debt ceiling increase and the budget caps for discretionary spending is an important accomplishment—especially in the light of the deeply partisan times in which we live.

At a time when our elected representatives have been polarized to the degree that they routinely fail to do their primary job each year—enact annual appropriations to fund the federal government on time—their nonperformance has become expected and even routine.

The compromise to raise the debt ceiling, once enacted, would save us from a further prolonged predicament of self-inflicted harm and could set a more productive path of progress and away from legislative stalemates.

Second, separating defense and non-defense budget caps is an important signal that funding should be based on requirements and priorities, and not on arbitrary limits dictated by political interests.

Defense is underfunded in meeting strategic intent and in protecting the force. We see evidence of this mismatch in readiness shortfalls that lead to fatal accidents and insufficient capacity of the force that further stresses enduring assets and the supply chains that support them. We see it in unfunded priorities approaching $17 billion; an Air Force that is too small and too old; a Navy with capacity and capability challenges; an Army in need of attention; a nuclear triad modernization bill coming due, and notorious facilities restoration backlogs.

Members of Congress, particularly those who are experts in national security, largely understand these challenges, which is why they have been adding billions to the defense budget request each year. But to do so, they have been forced to accept corresponding growth in domestic budgets, even when those increases are unneeded and not programmed for effective execution. Though such excess domestic discretionary spending is not a major contributor to the deficit, it is still a disservice to the taxpayer.

It is also important to remember that defense is the only mandatory and exclusive job of the federal government. But, at only 12 percent of federal outlays and a near historic low as a percent of the gross domestic product, it is not a driver of the deficit.

Third, the delay in enactment of annual appropriations year over year results in lost time, money and competitiveness that can’t be bought back. The very existence of a budget deal—once enacted, even if it provides less funding than required—has value and saves money.

In 2018, a two-year budget deal set funding levels for 2019 and facilitated enactment of annual appropriations and authorizations bills prior to the end of the fiscal year—a near historic event. Even though the defense budget top line was not what it needed to be, the certainty was a goodness on its own and allowed for a one-year suspension of the losses experienced under temporary funding measures.

If this current agreement enables enactment of annual appropriations on time this year, rather than wasting (at minimum) the first quarter of the year under a continuing resolution, defense will recover at least $16 billion in buying power that would otherwise be lost during just three months of extended funding.

Now for the exception.

The defense caps are too low. The 2024 cap would amount to a 3 percent cut to national defense programs after accounting for inflation and the pay raise. This cut would be compounded in 2025 with another 9 percent cut under the caps, again after accounting for a similar pay raise and inflation projection. An exception for special defense expenses, or a supplemental, or both will be needed in order to address the many known challenges and shortfalls.

The budget is also about more than numbers, it is about strategy. Either the budget would need to increase, or the strategy would need to change to reflect such cuts.

Even though the defense caps are too low and will need to be reconsidered, the agreement to raise the debt limit and set spending caps is positive in that it mitigates further damage to the economy. It frees defense spending from attachment to domestic budgets and sets the stage for a return to long-awaited regular order on annual appropriations bills.

Elaine McCusker is a senior fellow at the American Enterprise Institute. She is a former acting undersecretary of defense (comptroller).