Mar 16, 2007

Trillion-dollar defense budget is here

Robert Higgs

When President George W. Bush presented his budget proposals recently for the fiscal year 2008, he declared that the nation's security is his highest priority. He backed up that declaration by proposing an increase of more than 6 percent for the Pentagon's outlays, which would raise them to about $583 billion. Although many Americans regard this enormous sum as excessive, hardly anyone appreciates that the total amount of all defense-related spending greatly exceeds the amount budgeted for the Department of Defense.

Many entries lodged elsewhere in the budget identify funding that serves defense purposes just as surely as - sometimes even more surely than - the money allocated to the Pentagon. On occasion, commentators take note of some of these additional defense-related budget items, such as the Department of Energy's nuclear-weapons-related programs, but many others, including some extremely large ones, remain generally unrecognized.

The Department of Homeland Security's budget certainly ought to be included in any complete accounting of defense costs. After all, the homeland is what most of us want the government to defend in the first place. Other agencies also spend money in pursuit of homeland security. The Justice Department, for example, includes the Federal Bureau of Investigation, which devotes substantial resources to an anti-terrorist program. The Department of the Treasury informs us that it has "worked closely with the Departments of State and Justice and the intelligence community to disrupt targets related to al-Qaida, Hezbollah [and] Jemaah Islamiyah, as well as to disrupt state sponsorship of terror."

Much, if not all, of the budget for the State Department and for international assistance programs ought to be classified as defense-related, too. In this case, the money serves to buy off potential enemies and to reward friendly governments that assist U.S. efforts to abate perceived threats. About $4.5 billion of annual U.S. foreign aid currently takes the form of "foreign military financing," and even funds placed under the rubric of economic development may serve defense-related purposes indirectly. Money is fungible, and the receipt of foreign assistance for economic-development projects allows the recipient governments to divert other funds to police, intelligence and military purposes.

Two big budget items represent the current cost of defense goods and services obtained in the past. The Department of Veterans Affairs falls in this category. Likewise, a great deal of the government's interest expense on publicly held debt represents the current cost of defense outlays financed in the past by borrowing from the public.

To estimate the size of the entire de facto defense budget, I gathered outlay data for 2006, the most recently completed fiscal year, for all of the major contributors to defense-related spending, as shown in the accompanying table below. (I deliberately ignored many small items that may add up to a few billion dollars.) When all of the pertinent parts except the relevant interest payments are added to the budget for the Pentagon itself, they increase the fiscal 2006 total by nearly half again, from $499.4 billion to $728.2 billion.

To find out how much of the government's net interest payments on publicly held national debt ought to be attributed to past debt-funded defense spending requires a considerable amount of calculation. I added up all past deficits (minus surpluses) since 1916 (when the debt was nearly zero), prorated according to each year's ratio of narrowly defined national-security spending - military, veterans and international affairs - to total federal spending, expressing everything in dollars of constant purchasing power. This sum is equal to 91.2 percent of the value of the national debt held by the public at the end of 2006. Therefore, I attribute that same percentage of the government's net interest outlays in that year to past debt-financed defense spending.

The total amount so attributed comes to $206.7 billion. Adding this amount to the previous all-agency total brings the grand total to $934.9 billion, or more than 87 percent greater than the Pentagon's outlays alone.

If the additional elements of defense spending continue to maintain the same ratio to the Pentagon's amount, then in fiscal year 2007, the grand total spent for defense will be $1.028 trillion. I confirmed the rough accuracy of this forecast by adding up the government's own estimates of fiscal 2007 outlays for the various additional defense-related items, obtaining a total of $987 billion - an amount only 4 percent less than my ratio-based estimate.

Defense-related supplemental appropriations might easily bring the lower estimate up to the higher one. For now, however, the conclusion seems inescapable: the government is currently spending at the rate of approximately $1 trillion per year for all defense-related purposes. Moreover, even if, despite my best efforts, I have erred in my judgments or calculations and therefore overstated the correct amount somewhat, the total will certainly reach this astonishing sum very soon, given all the plans and programs already set in motion.





Department of Defense: $499.4 billion

Department of Energy (nuclear weapons & environonmental cleanup): $16.6 billion

Department of State (including international assistance programs): $25.3 billion

Department of Veterans Affairs: $69.8 billion

Department of Homeland Security: $69.1 billion

Department of Justice (one-third of FBI): $1.9 billion

Department of the Treasury (for Military Retirement Fund): $38.5 billion

National Aeronautics & Space Administration (half of total): $$7.6 billion

Net interest attributable to past debt-financed defense outlays: $206.7 billion

Total: $934.9 billion







Source: Author's classifications and calculations; basic data from U.S. Office of Management and Budget, "Budget of the U.S. Government, Fiscal Year 2008," and U.S. Bureau of the Census, "Historical Statistics of the United States, Colonial Times to 1970." Defense-related Outlays in Fiscal Year 2006.

Robert Higgs is senior fellow at The Independent Institute in Oakland and editor of the quarterly journal "The Independent Review."