Policy Proposals

Making Defense Affordable

February 22, 2013
Tax Policy & Budget

This proposal is chapter fifteen of The Hamilton Project’s 15 Ways to Rethink the Federal Budget, and a segment in Making Defense Affordable.


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The Problem

In recent years the U.S. military—the world’s strongest and most costly—has been ordered to curb costs as the government seeks ways to address historic and burgeoning public debt. Determining where to make mandated spending cuts while maintaining a strong and well-equipped military is challenging; decisions about cuts are complicated by uneven growth across the non-war defense budget. There are particular demands for cuts from employee health care and pay, as well as from operational, maintenance, and equipment outlays.

The Proposal

To preserve strength and readiness in the face of fiscal constraints, the U.S. military should undertake both personnel and non-personnel reforms. Pegging salary increases to inflation, reducing the number of enlistees who remain with the military through retirement, and restructuring how health-care costs are paid would slow the rate of human resources–related cost growth. Furthermore, improving controls for operations and maintenance budgets and minimizing the growth of weapons’ cost would allow the military to reduce costs without jeopardizing its mission.


The U.S. government faces a tough fiscal future. Absent significant changes to current taxation and spending policies, debt held by the public will mount within two decades to levels never before experienced by this country. The consequences for the American economy and for the nation’s place in the world could be severe.

Unless overturned, the Budget Control Act (BCA) of 2011 will cut future non-war defense budgets by about 10 percent from previously planned levels. The cuts mandated by the BCA fall far short of bringing anticipated future deficits down to sustainable levels, however. As a result, non-war defense budgets seem likely to shrink even farther than the levels set under the BCA—even if the law is overturned during the coming year or two. A real decline of 16 percent or more relative to previously planned levels would be consistent with both the magnitude of the nation’s structural fiscal problems and historical reductions to U.S. defense spending as wars end.

Efforts to reduce defense spending will be complicated by the fact that costs in some parts of the defense budget are growing significantly faster than inflation. This is particularly true in the areas of health care, pay, operation and maintenance, and equipment acquisition. If left unaddressed, that cost growth will eat into the funds available for military forces. This paper suggests a range of alternatives for curbing cost growth in those areas.

The paper also identifies two options for reshaping U.S. military forces in a way that would reduce future budgets while keeping a strong and ready military. It explores the capabilities of the forces under those options and the missions for which they would be suited.

Following the downsizing envisioned in either of the two proposed options, the U.S. military would still greatly outspend every other military in the world by a sizeable margin. The armed forces would be smaller than today’s, but if the reductions are handled sensibly the forces will remain by far the best equipped, best trained, and best maintained in the world.