By Richard L. Kugler and Hans Binnendijk

This paper assesses key issues in U.S. defense spending in the next decade and is intended to serve as a guide to analyzing the fiscal year 2006 budget submission. Wartime expenses aside, the big spending increases of recent years seem unlikely to be repeated far into the future. Persistent federal deficits and growing domestic entitlement programs will constrain the amount of money that can be spent on military preparedness. The defense budget may level off just as it should rise to accommodate high operating costs and mounting requirements for military transformation. If so, budget constraints will compel a concerted effort to spend available defense funds as wisely as possible. Spending patterns and priorities will change, and tradeoffs will be necessary.

If pressures on the defense budget increase, the biggest challenge facing the Department of Defense (DOD) will be determining how best to pursue two key transformation goals. The first goal is strengthening ground forces and related joint capabilities for expeditionary operations along the “southern arc of instability” in the near to mid term. The second goal is enhancing strategic dominance over future peer adversaries over the long term through acquisition of new platforms, space systems, and similar high-tech assets. Within this framework, DOD will need to address other weighty issues. Should investments in ground forces increase? If so, what priorities should be pursued? Can savings be extracted from support programs and from the operations and maintenance (O&M) budget to help fund investments? If so, how? Should spending on basic research increase? If so, can development of new technologies be accelerated while controlling costs? How should scarce procurement funds be allocated among new weapons emerging from research, development, testing, and evaluation? What is the best budget strategy for the long haul? Should the U.S. government create an overall national security budget for the interagency community?

Careful analysis of each of these issues is necessary, individually and collectively. The budget and program decisions flowing from the analysis will have major implications for future U.S. forces. This study recommends focusing on enhancing expeditionary warfare capabilities, while not denuding long-term transformation. In particular, it argues that, if DOD is to pursue ambitious transformation plans for both goals, it will need to find savings elsewhere.

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The opinions, conclusions, and recommendations expressed or implied within are those of the contributors, and do not necessarily reflect the views of the Department of Defense or any other agency of the Federal Government. Cleared for public release; distribution unlimited.

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First printing, November 2004.