Security Spending in the Deficit Agreement

A key part of the recent deficit reduction agreement is that the approximately $1 trillion in discretionary cuts are spread across the security and non-security parts of the budget. Since this is a complex agreement with many moving parts, I want to drill down on part important part of this deal -- security spending -- to explain what will be and could be cut.

To start, it’s important to understand the Administration’s approach to security spending. As the President has made clear on numerous occasions, as Commander-in-Chief, he has no greater responsibility than protecting our national security, and he will never accept cuts that compromise our ability to defend our homeland or America’s interests around the world.  In the President’s view, security encompasses not only the Department of Defense, but also funding that is used to protect America at the Departments of Homeland Security, Veterans Affairs, State and other international programs, and parts of the Department of Energy. In fact, “security” is a category that has been used in all the Administration’s budgets because it is important when allocating resources to recognize the roles that civilian and military agencies play and to be able to assess and balance all the national security tools they provide through one lens.

Consistent with the President’s commitment to protect the nation, his April fiscal framework proposed $400 billion over 12 years in security spending reductions, compared to the framework baseline.  This was to be achieved only after a careful review of our missions, roles, and capabilities so that we reduce spending in a way that does not compromise our national security. And the President has directed the Defense department and the military leadership to commence this strategic review.

The agreement just signed into law would achieve slightly more security savings than the President first proposed in April. Under baseline estimates, it would cut approximately $420 billion over 10 years. Assuming roughly proportional cuts, we project that of that $420 billion, $350 billion would be from the budget category of defense, and approximately $330 billion of that would be specifically from the Department of Defense. In sum, this agreement would be consistent with the President’s goal for security and Department of Defense savings as laid out in his fiscal framework in April.  

How is this savings achieved?

The agreement reduces discretionary security spending in FY 2012 by $4 billion as measured from FY 2011, and then only increases that reduced amount by $2 billion in FY 2013. After that, security spending (and non-security savings, for that matter) is projected to increase by about 2 percent a year. Overall, this new funding path will generate about $420 billion in savings over the next 10 years compared to CBO baseline levels. Compared to the Administration’s FY 2012 long-term plan (which included growth above current services), this new path will save some $600 billion, including about $500 billion from national defense, most of which would come from the Department of Defense. Of course, the precise funding levels and the specifics of how these cuts would be taken will have to be worked out by the Administration and Congress over the next decade.

The agreement also set up a special bipartisan committee charged with reducing the deficit by an additional $1.5 trillion. If by the end of this calendar year Congress fails to enact recommendations reducing the deficit by that amount, then a sequester would be triggered that would cut spending by $1.2 trillion. Half of this amount would come from defense spending (a narrower category than the security category above, and encompassing mainly the Department of Defense), and half would come from everything else, with key exceptions. 

Make no mistake: the sequester is not meant to be policy. Rather, it is meant to be an unpalatable option that all parties want to avoid. The Administration views these cuts in that way, and we imagine that both parties in Congress would as well. That is precisely the point: design a sequester that would create a powerful incentive for Congress to do its job and pass balanced, responsible deficit reduction. In the first phase of this agreement, we tackled discretionary spending. In the second phase, the bipartisan deficit reduction committee will need to look at the rest of the budget – namely, entitlements and revenue – and find savings that are broadly shared across these categories. It will take tough choices, but if you rule out changes to one whole part of the budget, it will create deep cuts that are inconsistent with the type of country we are – or want to be.

Reducing the deficit is hard work, and this agreement is a down payment on balanced, comprehensive deficit reduction. As such, it includes cuts in security spending, and does so in a way that is responsible, thoughtful, and consistent with our national security.

Jack Lew is the Director of the Office of Management and Budget.