The Debate, Defense and the Fiscal Cliff: Why Tonight Is Really About the Budget (Again)

For the past few months, Mitt Romney, Barack Obama, and their respective supporters have traded punches on dozens of topics, from health care to the Detroit bailout to Bain Capital. Behind the blusters, though, most of the battles between the two candidates have boiled down to one topic: the economy.

Whether the question is tax rates or health care or the 47%, the ultimate questions facing Romney and Obama -- and, by extension, the voters -- are how can America fund the programs it needs, and how can it cut the rest.

Ostensibly, tonight's debate is on foreign policy, but the battle over the budget will underlie everything the two candidates say. To some extent, America's foreign policy is scripted by two factors: its pocketbook and its willingness to write checks for overseas military engagements. On this at least, Obama and Romney are miles apart -- and occupy positions that seem somewhat out of character to the rest of their politics.

In terms of budgeting, Romney has consistently called for massive budget cuts, specifically to Obamacare, Amtrak, Title X Family Planning, Foreign Aid, and the National Endowment for the Arts and Humanities. When it comes to defense, however, he has gone in the opposite direction: Under his plan, defense spending would rise to "a floor of 4% of GDP." Put into straight numbers, this means that the defense budget would go from $711 billion to $790 billion per year -- a 10% increase.

It's not clear that defense is underfunded: According to the nonpartisan Center on Budget and Policy Priorities, defense is America's top "discretionary" budget item. It currently accounts for one-fifth of all federal spending, which puts it on a level with Social Security and 1% behind the country's combined Medicaid, Medicare and CHIP spending. Put another way, America spends 7% more on defense than it does on its safety net programs.

The gargantuan scale of U.S. defense spending becomes even more clear when viewed against the rest of the world. In terms of military budgets, America is -- far and away -- the world leader: 41% of all defense spending in the world is done by the U.S.; the next-biggest spender is China, at a measly 8.2%. In terms of straight dollars spent, America also leads the world; the next-highest defense spender is -- again -- China, but their $143 billion defense budget is a modest 20% of America's. In fact, the only place where America falls to second in defense spending is in terms of GDP. There, Saudi Arabia leads the pack with 8.7% of its GDP going to its military.

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In the second presidential debate, Obama responded to Romney's proposed budget increase by saying that "Governor Romney ... wants to spend $2 trillion on additional military programs even though the military's not asking for them." To some extent, this is true: Obama has proposed -- with the cooperation of the military -- $487 billion in defense cuts over 10 years. A large fraction of these cuts will come from reducing personnel, as the military moves toward a less manpower-intensive model.

While Obama's military cuts are unattractive to some military hawks, if he wins reelection, he'll be carrying an even larger gun into the next round of budget negotiations: An annual spending cut of $50 billion to the defense budget. And it's an automatic weapon.

When members of Congress failed to pass a budget based on the recommendations of President Obama's bipartisan deficit commission back in March, they left the nation with a painful alternative that they'd built into their previous byzantine attempt to postpone compromise: Automatic spending cuts across the board to all discretionary federal spending -- and that includes defense.

It's one, but hardly the only, piece in the looming crisis that has come to be called the fiscal cliff.

For the Defense Department, the $50 billion cut would slash the military deeply. Generally, pundits and analysts have assumed that the president would seek a deal to avoid the fiscal cliff before it hits in January, but New York magazine's Jonathan Chait offers a contrarian perspective: he suggests that the president would be best served by sitting tight and allowing the combination of tax increases and mandatory budget cuts to go into effect on Jan. 1.

As I've noted before, the fiscal cliff -- on a straight percentage basis, at least -- will be hardest on high-net-worth households. It will do away with the massive Bush tax cuts to the wealthy, as well as the low capital gains, dividend, carried interest, and inheritance tax rates that overwhelmingly benefit the rich. Chait adds to this, pointing out that the new year's mandatory budget cuts would go a long way toward reducing deficits, and would put the Republicans on the defensive when it comes to the inevitable tax, debt ceiling and spending negotiations that would accompany a second Obama term. With massive, pre-programmed defense cuts on the horizon, he argues, Republicans in Congress would be much quicker to strike a deal.

For a fiscal hawk like Romney, increasing the defense budget plays against character; conversely, Obama's reputation as a big spender is certainly undermined by his determination to cut the military's budget. But with a cliff up ahead, it seems likely that both sides are prepared to expand their playbooks.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.


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