The United States faces a watershed moment: it must decide whether to increase its already massive debt in order to continue being the world's sheriff or restrain its military missions and focus on economic recovery. Military power has dominated the United States' global engagement over the last decade, but it is now clear that the country overreached. Americans are questioning whether pursuing a defense strategy focused on counterinsurgency and nation building, supported by a defense budget that is growing continuously, makes sense at a time of severe economic and fiscal challenges. As the Obama administration enters the second half of its term and a new Congress assembles, the U.S. government must make difficult choices about which defense missions to undertake, exercise restraint in defense planning and budgeting, and bring tough management practices to the Pentagon.
U.S. military missions and the defense budget that supports them have grown without discipline over the past decade, largely as a consequence of the wars in Afghanistan and Iraq. Various administrations and Congresses have neglected the imperative of setting priorities. This has allowed the Department of Defense to undertake an ever-growing array of tasks, adding to traditional missions, such as conventional and nuclear deterrence, sea-lane patrol, and disaster relief, a suite of new ones: nation building, stabilizing fragile states, counterinsurgency, and strengthening the security capacities of other countries. The 2010 Quadrennial Defense Review reinforced this trend by overstating the world's dangers and advocating the elimination of all possible risks. The U.S. government's ambitions now outstrip its capacities at home and its welcome abroad.
The national defense budget accounts for 56 percent of all U.S. federal discretionary spending. Defense is now one of the country's "Big Four" accounts, consuming roughly the same share of federal spending as do each of Social Security, income-based entitlements (such as welfare), and the total nondefense discretionary budget. And the United States is expected to spend over $700 billion on national defense in 2011 -- twice as much as it spent in 2001, more in real dollars than for any year since the end of World War II, and as much as is spent by the rest of the world's militaries combined.
Defense missions have expanded and spending has soared even though the United States has never been more secure militarily. It has no close competitor, a strategic nuclear exchange is highly improbable, major conventional combat on land is unlikely, and it maintains significant dominance at sea. Al Qaeda and its allies remain active, but their capacity to launch attacks and their support base in Afghanistan have eroded. The U.S. deployment in Iraq, now less than one-third the size that it was at its peak, is scheduled to end in December 2011, and President Barack Obama has said that U.S. forces in Afghanistan will start leaving in July.
Meanwhile, economic and fiscal challenges are center stage. As Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said in August, "The single biggest threat to our national security is our debt." Overcoming that threat will require making tough choices to control all federal revenues and spending, including national defense costs.
The Congressional Budget Office currently projects that between fiscal years (FY) 2012 and 2018, the U.S. government will spend over $5.54 trillion on defense. In addition to any reductions stemming from the United States' withdrawal from Afghanistan and Iraq, gradual cuts could lower the defense budget over those seven years by more than $788 billion, to about $4.75 trillion -- a reduction of more than 14 percent. This would involve reducing the active-duty force by 275,000 troops, to 1.21 million (yielding $166 billion in savings); cutting programs that are redundant, underperforming, or linked to low-priority missions ($354 billion in savings); restraining military compensation, health-care, and retirement costs ($148 billion in savings); and reforming the intelligence community ($120 billion in savings).
Even with these reductions, and after adjusting for inflation, U.S. defense spending in FY 2018 would be well above the Cold War average. The United States would remain the world's dominant military power and as able as it is today to deploy its military force globally, fight al Qaeda, respond to present and future security challenges, and act as a peacekeeper and a major deterrent force. Befitting its priority missions, the U.S. military would have fewer ground troops, continuing air superiority, a large naval capability, and a force more focused overall on combat -- and it would better ensure the security of the United States. And by choosing to undertake only tailored missions and to fund them with disciplined budgets, the Pentagon would also be contributing vitally to the country's broader fiscal health.
Defense Secretary Robert Gates has proposed eliminating the Joint Forces Command and two Pentagon bureaucracies (the Business Transformation Agency and the Office of the Assistant Secretary of Defense for Networks and Information Integration), canceling several military hardware programs, and reforming the defense contracting process. Efficiency gains such as these are always helpful. But Gates also argued last August that "the task before us is not to reduce the department's topline budget; rather, it is significantly to reduce its excess overhead costs and apply the savings to force structure and modernization." In other words, instead of contributing to a disciplined and well-planned reduction of the United States' debt, Gates wants to keep existing funds in the Pentagon and maintain both the military's current size and most of the Pentagon's planned investment programs. The FY 2011 budget, which is still pending before Congress, proposes to increase the defense budget, despite its already historic level, and Gates has widely advertised that he hopes to achieve one percent real growth in the defense budget in the years after FY 2011.
More effort will be necessary to discipline defense missions and reduce the Pentagon's spending. The last substantial drawdown, which started with the Balanced Budget and Emergency Deficit Control Act of 1985 and proceeded through the end of the Cold War, is a clear historical precedent: it proves that major reductions are possible and can make the force even stronger. At the same time as other cuts were being made across the national budget, between FY 1989 and FY 1998, the Department of Defense decreased its total budget by 28 percent in constant dollars (this included a 50 percent reduction in funds for the procurement of military hardware). The number of civilians employed by the Department of Defense fell from 1.13 million to 747,000, and the Pentagon reduced active-duty troops from 2.2 million to 1.47 million. And this reduced force was still able to help bring peace to the Balkans in the 1990s, topple the Taliban in 2001, and overrun the Iraqi military in 2003.
Reducing the deficit and controlling debt today will require the U.S. government to make similarly tough calls -- and start setting priorities among missions rather than simply layering on additional missions, as proposed in the 2010 Quadrennial Defense Review. Spending less on defense means doing fewer things, and that means making firm choices in precisely the areas that Gates has said he wants to protect from budget cutbacks, including the size of the military itself. Force size drives the defense budget: it has a direct impact on the cost of operations, investment in hardware, and the cost of payroll. Thus, budget discipline requires mission discipline. Not all tasks are equal; some are more critical or more urgent, or demand more forces. A sober evaluation of missions' relative importance would lead to a smaller and more focused military, with budget savings as a result. Dismantling al Qaeda's core, including capturing or killing its leaders, should be the top priority. But this will require far fewer forces than the global campaign against terrorism; it will primarily require special operators such as the Army Rangers, Delta Force, the Special Forces, and the Navy SEALs, of which there are already enough for the mission. In addition, many aspects of the fight against al Qaeda, such as homeland security and law enforcement, fall on the civilian side of the U.S. government. Rather than increasing the military's size, it will be important to invest both in other countries' development (in order to assist them with building governance institutions) and in law enforcement efforts to prosecute terrorists and control U.S. borders (in order to increase the United States' resiliency).
Cybersecurity is another critical priority. Controlling information and communications networks enables the military's missions, both offensive and defensive. As Deputy Secretary of Defense William Lynn wrote in these pages last fall, describing a breach of the U.S. Central Command's systems by an infected flash drive, this challenge is very real. At the same time, the Department of Defense's activities surely include plans to observe, redirect, or even disable its adversaries' communications. Yet although this mission is crucial, the threat to which it responds is not existential, its ambit is focused, and it does not require significant forces -- much like the mission to dismantle the al Qaeda network. As the RAND cybersecurity expert Martin Libicki put it last October, "almost 99.9 percent of that stuff [cyberattacks] is just espionage going back and forth." And when it comes to the country's civilian infrastructure, the private sector, and especially industry, is most responsible for securing its networks, both for its own sake and for that of the public. This is especially true with respect to cyber-espionage because industry is very experienced in defending its trade secrets. In the less frequent instances of outright cyberwar, it falls largely on the civilian institutions of government, such as the Department of Homeland Security, to ensure protection. Preventing and preparing for such attacks will require the Pentagon to concentrate its investment more narrowly -- according to the military-specific mission of Cyber Command -- and transition much of the cyberprotection currently executed by the National Security Agency to the Department of Homeland Security.
Meanwhile, several threats to which the U.S. military has traditionally devoted considerable resources are now less likely to occur than in the past or would be less consequential if they did. The end of the Cold War brought an unprecedented level of security to the United States. Since then, both nuclear and large-scale conventional combat have become improbable dangers. Spending in these areas should be sufficient to hedge against risk, but they should not drive the budget.
Some people point to China as a successor to the Soviet Union and cite it as a reason why preventing and preparing for nuclear or large-scale conventional war should remain priority missions. They highlight the risk of a U.S.-Chinese conflict over Taiwan or the possibility that China will deny the U.S. military access to the western Pacific. Of course, China is a rising power that is making increasingly substantial investments in defense. But it is important not to overreact to this fact. Focusing on China's military capabilities ought not replace a broader strategy. As the United States determines how to engage China and how to protect its interests in Asia generally, it must balance the diplomatic, economic, and financial, as well as the military, elements of its policy. Most defense analysts estimate that China's military investments and capabilities are decades behind those of the United States, and there is very little evidence that China seeks a conventional conflict with the United States. There is substantial evidence that China's economic and financial policy is a more urgent problem for the United States, but one of the best ways for the United States to respond to that is to get its fiscal house in order.
The prospect of a major war with other states is even less plausible. Defense planning scenarios in the 1990s were built around the possibility of two conflicts. The one involving Iraq is now off the table. A conflict with North Korea was the second, but although that country's military is numerically impressive, South Korea's state-of-the-art armed forces can manage that challenge without needing the assistance of U.S. troops. The United States can now limit its contribution to strategic nuclear deterrence, air support, and offshore naval balancing in the region. The prospect of a conventional war with Iran is not credible. Iran's vast size, to say nothing of the probability that the population would be hostile to any U.S. presence there, means that anything more than U.S. air strikes and Special Forces operations targeting Iranian nuclear capabilities is unlikely.
Given the stakes, some hedging for these exceedingly low-probability risks is reasonable. But even a smaller U.S. force and budget than today's would be ample because many of these risks are less likely than ever and the United States' allies now enjoy unprecedented military and strategic advantages. The most vexing missions are those at the heart of the Quadrennial Defense Review: counterinsurgency, nation building, and the building of other countries' security sectors, among others. And these, alongside competition with China, are motivating Gates and other planners at the Pentagon, despite Gates' acknowledgment in this magazine last spring that "the United States is unlikely to repeat a mission on the scale of those in Afghanistan or Iraq anytime soon -- that is, forced regime change followed by nation building under fire." Such planned missions are based on a misguided premise: that the U.S. campaigns in Afghanistan and Iraq foreshadow the need for a large U.S. military force to increasingly intervene in failing states teeming with insurgents and terrorists. But Gates' effort to nonetheless tailor U.S. military capabilities to such tasks suggests that there is still significant support for them in the Pentagon. According to General George Casey, the army chief of staff, for example, the United States is in an "era of persistent conflict." Yet the United States is very unlikely to embark on another regime-change and nation-building mission in the next decade -- nor should it. Indeed, in the wake of its operations in Afghanistan and Iraq, the demand for the United States to act as global policeman will decline.
Pakistan is often cited as a state that might require such an intervention. Clearly, it is the case that Gates had in mind when he worried about "a nuclear-armed state [that] could collapse into chaos and criminality." But even if Pakistan collapsed, the U.S. government would probably not send in massive forces for fear of facing widespread popular opposition and an armed resistance in the more remote parts of the country. More likely, the U.S. government would resort to air power and Special Forces in order to secure Pakistan's nuclear arsenal. After the invasions of Afghanistan and Iraq, it is clear that U.S. forces are not suited to lengthy occupations, especially when they involve a stabilization mission, governance reform, and economic development.
TOOTH AND TAIL
Setting priorities will make it possible to reduce the size of the U.S. military while retaining a sufficiently large and superior force for critical missions. Eliminating counterinsurgency, stabilization, and nation building as first-order tasks would allow for cuts in the number of ground forces. In particular, the buildup in ground troops that President George W. Bush announced in his 2007 State of the Union address -- an addition of 92,000 soldiers and marines for operations in Afghanistan and Iraq -- could be reversed.
Moreover, a revised assessment of the United States' needs in terms of nuclear deterrence and conventional warfare would allow for an additional drawdown of permanently stationed U.S. forces. In Europe, where the chances of a military conflict continue to decrease -- and where military planners are consequently reducing and restructuring their forces -- the U.S. presence could shrink by 50,000, from approximately 70,000 down to 20,000 troops. Deployments in Asia could be halved, from 60,000 to 30,000, to refocus the United States' presence in the region on its comparative advantage: strategic nuclear deterrence and naval operations. These changes would also rebalance the United States' permanent deployments overseas toward Asia, where war, although still very unlikely, is more possible than in Europe. The United States' air and naval forces in Asia would be largely unaffected, leaving ample capacity to counter any threat from China or North Korea as well as guarantee the United States' access to the Pacific and reassure U.S. allies that it will continue to play an important military role in the region.
U.S. forces could be trimmed even further by reducing the size of the military's "tail," or overhead, relative to its "tooth," or combat forces. According to a report by the consulting firm McKinsey & Company last spring, the U.S. military's tooth-to-tail ratio is more skewed toward the tail than are these ratios for the militaries of nearly all other industrialized countries. In an October 2008 study, the Defense Business Board found that 42 percent of the Pentagon's budget goes to overhead -- including training, departmental management, and the general health program for service members and their families. These tasks are the primary duties of roughly 35 percent of the active-duty force, or approximately 500,000 people. A July 2010 study by the Defense Business Board found that 560,000 troops have never been deployed, despite the demand of the operations in Afghanistan and Iraq.
This overhead must be streamlined. Some 100,000 active-duty forces should be cut from the back office across the services. This is a conservative estimate of the number of positions that could be cut through attrition alone over five years. The vacancies created would not need to be filled again by civilians or contractors because if missions were prioritized, the Pentagon's overall personnel needs would shrink. These cuts should come on top of the several thousand positions that will be saved by closing the Joint Forces Command. Together with the reduction of the 92,000 ground troops that were added for the operations in Afghanistan and Iraq and the 80,000 troops to be withdrawn from Europe and Asia, the total cuts would amount to about 275,000 fewer personnel, or a 19 percent reduction in the force's total size. The cuts would take place gradually over a five-year period, starting in FY 2012, and would leave the United States with a total force of 1.21 million and one rebalanced toward combat. With roughly $1.2 billion saved annually for every 10,000 forces cut, and the 275,000 troop reduction implemented over five years, total savings would amount to $166 billion between FY 2012 and FY 2018.
THE RIGHT STUFF
Setting priorities would also help the Pentagon make better investment decisions. Emphasis should be placed on spending that supports priority missions and that is adapted to the specific tasks that U.S. forces are likely to undertake in carrying out those missions. For example, cargo aircraft and sealift capabilities make rapid deployment possible, which can justify having a smaller permanent force overseas. Increased investments in unmanned aerial vehicles for surveillance, missile strikes, and support for ground forces would advance multiple missions, from conventional deterrence to modern special operations, and thereby decrease the need for high-cost fighter jets. Additionally, investments in hardware should be assessed according to whether they create excess capability, are too costly for the capability they deliver, and perform as expected.
With these criteria in mind, five major investment programs currently under way should be cut, curtailed, or delayed. They are excessive both because the mission that justifies them, conventional war, is extremely improbable and because the United States' existing capabilities for waging such a war are already significantly superior to those available to its potential adversaries. Moreover, the production lines for current-generation programs remain open, which means that more equipment could always be acquired later should it become necessary.
The F-35 Lightning II program, which is expected to cost a total of $260 billion starting FY 2012, well exceeds current and foreseeable needs. According to the U.S. Air Force and the U.S. Navy, the military's current fourth-generation fighters -- the F-15, the F-16, and the F-18 -- are superior to Chinese and Russian aircraft, and they are less expensive than the F-35. The V-22 Osprey, a tilt-rotor aircraft designed to fly like a plane and take off and land like a helicopter, offers new and attractive capabilities, but its cost per unit has ballooned well beyond expectations, and its performance in Afghanistan and Iraq has been disappointing. Rather than spend an additional $18 billion on the V-22 starting in FY 2012, as planned, refocusing on more affordable and effective helicopter programs that already exist would be an adequate and more fiscally disciplined alternative. The blimp-carried cruise missile surveillance system known as JLENS, for which $6 billion is slated for when production starts in FY 2012, should not be pursued, because the United States is very unlikely to face a cruise missile attack and has numerous other well-performing surveillance options at its disposal. The Medium Extended Air Defense System, due to enter service in FY 2018, is designed to intercept shorter-range missiles. Developed in cooperation with Germany and Italy, the program persists because it symbolizes successful interstate relations. Yet it is redundant with the Patriot system and, by the army's own accounting, does "not address current and emerging threats." That assessment makes the program's total price tag starting FY 2012 -- $28 billion -- completely unaffordable. The Marine Corps' program for the Expeditionary Fighting Vehicle, which is designed for amphibious assault, should also be terminated. Costs per unit have grown by 177 percent since 2000, to $24 million. The vehicle's performance record is questionable, and in any case, no amphibious landing has been executed under combat circumstances in decades.
Two other investment programs need to be reconsidered. Plans to add 42 vessels to the existing fleet of next-generation attack submarines -- at a cost of $2.76 billion each starting in FY 2012 -- would provide excess capability. Deferring the purchase of seven of those ships until the mid-2020s would more adequately reflect the exceedingly low likelihood that the United States will need to engage in all-out submarine warfare over the next two decades. Even more extravagant is the program for ballistic missile defense. Projected costs for the program between FY 2012 and FY 2015 are $29 billion, and the program has already cost over $130 billion since it began in the 1980s. Reducing this funding by half would incentivize the Missile Defense Agency to concentrate on more effective and cheaper technologies, which could function as a hedge against any threat of a ballistic missile attack in the near term. Foremost among those technologies is the Aegis system mounted on U.S. Navy destroyers.
Based on figures in the Pentagon's Selected Acquisition Report for the fall of 2009 and other government analyses of recent budgets, canceling the five hardware-purchase programs, deferring the construction of some submarines, and reducing funding for ballistic missile defense research would yield $164 billion in savings between FY 2012 and FY 2018.
Yet discipline in the Department of Defense's investment budgets will need to go deeper; major investment programs such as these account for less than half of the total defense procurement budget each year. The remainder of defense procurement -- for example, for transportation and construction equipment; such items as radios, rifles, and night-vision goggles; and some services contracting -- is rarely subjected to close scrutiny even though it consumes 60 percent of the procurement budget. The amount of spending on this category of investments closely mirrors the size of the force. Consistent with the proposed 19 percent reduction in the force's size, funding for minor procurement of this kind should be cut by $103 billion between FY 2012 and FY 2018.
The budget for research and development (R & D), which has grown in real terms by 60 percent since 2001, should also be reduced. There is no obviously "right" level of funding for R & D, but with the current overall U.S. military R & D investment exceeding China's entire defense budget for 2009, it would be safe to cut it, too, by 19 percent between FY 2012 and FY 2018. Such a reduction would yield roughly $87 billion in savings while keeping the United States' level of military R & D far above that of any other country. This cut, in addition to the other proposed reductions in total defense investments, would generate savings of $354 billion.
PAID AS YOU GO
The Department of Defense has struggled for years to control its budgets for pay and health-care and retirement benefits as the real cost of these expenses has grown and the population eligible for them has expanded. Congress has exacerbated the problem by continually increasing existing benefits and creating new ones. As Gates himself has pointed out, these expenses are now "eating the Defense Department alive." Yet reining them in has proved to be a political third rail. Congress has already received and rejected proposals for such cuts, but that does not change the fact that the country's important obligation to its military personnel needs to be balanced with fiscal discipline. The newly elected members of Congress campaigned on their resolve to tackle unrealistic entitlements for civilians, and their zeal might extend to equally unrealistic military benefits.
The U.S. military's pay system has become increasingly disconnected from its primary purpose: developing a compensation system that produces the mix of personnel that can get the work done most effectively. By this standard, the key indicator of the adequacy of military pay is whether recruitment and retention targets are being met, particularly for tasks requiring critical skills. The Congressional Budget Office has determined that overall military pay, including cash and in-kind compensation, presently exceeds compensation for comparable work by civilians by at least 11 percent. This is the result of the Pentagon's long-standing tradition of maintaining morale by paying members of equal rank and grade roughly the same, irrespective of the demand for particular skills, as well as of Congress' routine practice of authorizing pay increases above those requested by the Pentagon.
A much more refined pay model is needed, one that replaces across-the-board pay raises with a more tailored approach that would allow supply and demand to generate the right combination of needed specialties and skills. This would involve much greater use of targeted bonuses and special pay for key required specializations or jobs, such as assignments to hazardous stations and language or technological skills. Importantly, current pay increases based on promotions or longevity would not be affected, nor would the special compensation given to combat troops for hazardous duties. Across-the-board pay increases should be suspended as military forces are reduced and reorganized according to the cuts suggested here. This adjustment could take two years or more, at which point the general pay increase question could be revisited. This could save roughly $40 billion between FY 2012 and FY 2018.
Likewise, the Department of Defense's health-care system, TRICARE, badly needs discipline. Defense health-system costs have grown from $19 billion in FY 2001 to over $50 billion in FY 2010. The pool of eligible personnel has expanded since Congress created TRICARE in 1995: TRICARE Reserve Select was introduced for reservists and their dependents, and TRICARE for Life was added for Medicare-eligible retirees and their dependents.
There are two types of retirees in the TRICARE system: those who are eligible for Medicare and those who are not, typically because they remain in the work force and have not reached the age of eligibility for Medicare. TRICARE was founded with the expectation that beneficiaries who have not yet reached the age of eligibility for Medicare would pay approximately 27 percent of the overall cost of the program through enrollment fees and copays. But the premiums and the cost-sharing system have not changed since then. This has attracted a large number of military retirees still in the work force to TRICARE and away from alternative, civilian health-care plans. Now, only 11 percent of the program's costs are covered by beneficiaries not yet eligible for Medicare.
This must be corrected. Retirees who are eligible for Medicare and their dependents should share in the costs of TRICARE. For other retired beneficiaries, the enrollment fees and copays should be increased to 27 percent of costs, as was intended when the program was created. According to figures from the Congressional Budget Office, such changes could save $48 billion between FY 2012 and FY 2018.
Finally, the military's retirement program should be revised. It is an unfair system for those employees who leave the service before 20 years, the term after which they become eligible for the program. And it frustrates Pentagon managers, who could more easily encourage departures to match the military's personnel needs if a retirement option before 20 years of service were available. The system should be revised wholesale, using the civilian Federal Employees Retirement System as a model. FERS benefits become vested after five years, the program includes Social Security and a defined benefit plan, and employee contributions are matched by the employer. Eligibility for a full pension should be delayed until the retirement age set by Social Security, but a one-time lump-sum payment to ease the transition to civilian life should be provided to service members whenever they leave the service. Personnel who already have over 15 years of service at the time of the transition to the new system should be exempt from it. An analysis of similar proposals developed by the Department of Defense suggests that $60 billion could be saved between FY 2012 and FY 2018 from such a reform. Foregoing across-the-board military pay increases for two years, modernizing the TRICARE cost-sharing system for working military retirees, and reforming the military retirement savings plan could generate $148 billion in savings between FY 2012 and FY 2018.