Tab A
Paper Prepared in the National Security Council4
Level of Defense Spending
Issue: What overall level of defense spending
should your FY 79 budget call
for?
[Page 196]
This is the perennial question, how much is enough? Defense
approaches the problem by aggregation of specific programs,
infrastructure and overhead aimed at fulfilling your strategic
guidance, and the services’ missions. OMB’s fiscal guidance is based on a judgment of how
much we ought to spend in comparison with other federal programs and
where the “fat” lies in the Defense budget. I want to give you a
third perspective: what level of U.S. defense effort is needed to
deal with the strategic, foreign policy, and domestic political
effects of the continuing Soviet buildup—particularly in light of
your determination to aggressively pursue improved relations and
arms control arrangements with the Soviet Union.
I am assuming that the seven alternative levels proposed by OMB, ranging from $114 B
TOA to $136 B all encompass worthwhile programs and that the
question is not waste but how large an effort we want to make. I
also understand that the real range of choice involves about $5
B out of a potential budget of
$125 B to $130 B—about 4 percent of the budget.
The Soviet Buildup
The CIA estimate of Soviet defense
spending which is commonly accepted as a comparable index of Soviet
capability does not show a crash Soviet program. Rather it shows a
steady average annual increase of 3–4% in real terms over the last
decade and more. This growth is evident in nearly all parts of the
Soviet military establishment, including investment.
The compound effect of this level of effort has been impressive:
- —
- [4 lines not declassified] They
have erased their strategic inferiority of a decade ago but
show no sign of slackening efforts.
- —
- They have reequipped their ground forces facing NATO, including a new armored
personnel carrier, new self-propelled artillery, and now a
new tank.
- —
- They have modernized their tactical air forces in Europe,
significantly narrowing the disparity against them in
qualitative factors (range and payload) while retaining a
substantial advantage in numbers of aircraft.
- —
- They have moved their navy to sea, challenging us for
control of the Mediterranean, conducting intense
surveillance and operations throughout the Atlantic and in
the Far East.
During the same period, US defense
spending declined in real terms at a steady 4% rate from the wartime
peak as the US disengaged from
Vietnam. Moreover, the high rate of expenditure during the Vietnam
war did not find its way into investment but was eaten up by combat
operations. The result at the end of the war was low readiness, a
backlog of major maintenance and obsolete equipment. Finally, in
FY 76
[Page 197]
the Defense budget was increased by 4%,
followed by 5% real growth in FY 77.
The FY 78 budget, recently approved
by Congress, contains only 1% real growth, reflecting, in part, the
cancellation of the B–1.
The broad strategic and political consequences of these unfavorable
trends are increasingly obvious. In Europe open concern about Soviet
military superiority has led to policies and actions to accommodate
the Soviet Union that are evidence that the process of
Finlandization may already be underway. In Asia the shock of Vietnam
and the US decisions on Korea have
led the Chinese as well as the Japanese to believe that we are
moving toward a gradual pullback. At home, moderate and conservative
opinion is increasingly concerned at the adequacy of our defense
efforts and suspicions of the effects of arms control agreements
with the Soviet Union.
The last point deserves some elaboration. American opinion has always
swung back and forth on the issue of dealing with the Soviet Union.
We are clearly in a more conservative period despite the public’s
underlying support for better relations and nuclear arms control. At
the same time, as I have suggested, many of your initiatives are
seen as “soft”—which even most of those supporting detente do not
want us to be. In this context your Defense budget level takes on
added significance. It could either enhance confidence that our arms
control agreements are consistent with our security or further
polarize Congressional and public opinion.
The NATO 3%
Real Growth “Commitment”
Our PRM–10 review led to a
fundamental judgment: that the trends in the East-West military
balance in the last decade have been unfavorable; but that public
opinion could support budget levels that would permit us to offset
Soviet modernization by the mid-’80s. PD–18 emphasized the need of offset future Soviet
modernization by equivalent increases in US and Allied defense spending, and called for 3% real
growth.5
At the NATO Summit, you told the
Allies that the US would make a
major effort to increase the collective strength of the Alliance if
the Allies would do the same.6 Since about 1970, Allied defense
spending has increased by about 2%–3% per year in real terms, but
many European countries are capable of doing more. At the Summit
follow-up meeting, the NATO
Defense Ministers agreed to a Ministerial Guidance (a NATO planning document that is
renegotiated every two years) that included an aim of an annual
increase in real terms “in the region of 3%” for the planning period
1979–1984.
[Page 198]
Though it is too early to say with certainty, it appears that most
Allies will respond favorably to this aim.
- —
- The FRG plans a 3% real
increase in defense spending in 1979.
- —
- France, which does not adhere to Ministerial Guidance, intends
7% real growth.
- —
- However, the British, who carry one of the heaviest defense
burdens in Europe (5% GNP),
reduced ’78/’79 spending by £ 200–300 million from their planned
level, resulting in a ½% real decline.
The whole issue of how much is enough and whether we are going to
respond to the long term Soviet buildup will in practical and
political terms revolve around the 3% growth issue—whether we will
follow that goal, how to define it and what the baseline should be.
All informed opinion is aware that the Government has made such a
commitment and this will be taken as a barometer of your overall
attitude on security issues.
There are two issues regarding the definition of the 3% aim:
- —
- Should the FY 79 budget
request be compared to the Administration’s FY 78 budget request ($119.5 B)
or to the FY 78 budget
approved by Congress ($116.5 B)?
- —
- Should the 3% factor apply to the entire budget or to some
“NATO-related portion”
(OMB uses 40% of the
budget)?
Different answers to these two questions result in four alternative
levels (TOA $ B):
|
Base |
+ |
Inflation7 |
+ |
Growth |
+ |
Total |
| (40% budget grows) |
116.5 |
|
7 |
|
1.5 |
|
125 |
| (entire budget grows) |
116.5 |
|
7 |
|
3.5 |
|
127 |
| (40% budget grows) |
119.5 |
|
7 |
|
1.5 |
|
128 |
| (entire budget grows) |
119.5 |
|
7 |
|
3.5 |
|
130 |
The higher baseline would result in a request
for real growth of about 5% above FY
78 appropriations in order to continue 3% growth on the average of the two years, since the FY 78 budget ended up providing for
only 1% real growth. It also “protects” the NATO commitment from the inevitable
Congressional cuts. In short, we would ask again for the money we
thought we needed but that Congress cut.
On the other hand, since the NATO
commitment does not apply to the FY
78 budget, there is no political need to make up for last year’s
cuts in this year’s budget. Moreover, about $1 B was cut at the Administration’s
request due to your B–1 decision.
[Page 199]
The “NATO-related
portion” definition has some serious drawbacks:
- —
- The NATO Ministerial
Guidance has historically been interpreted in terms of a
longstanding NATO
definition of defense spending, which includes all defense spending. Further,
Secretary Brown has publicly implied that the commitment
applies to the entire budget, not a portion of it.
- —
- There is no clearly defined “NATO-related portion” of the DOD budget. OMB’s 40% figure is taken from
an analysis that OSD has
provided annually to Congress since the early ’70s.8 It
includes those general purpose forces that we would
anticipate employing in Europe in a worldwide war. It does
not include strategic nuclear
forces, conventional strategic reserve forces, forces for
Asia, all R&D and fixed
installation costs, certain central support costs such as
headquarters and personnel support. Many of these items or
some fraction of them should be considered as NATO-related, especially
strategic nuclear forces, given their role in the NATO Triad and the defense of
Europe. In fact, we would encounter political difficulties
were we to argue that strategic forces are not part of our NATO contribution.
- —
- Attempting the 40% argument could hurt our credibility
with the Allies and invite them to take the same approach,
which would undermine the intent of the 3% goal.
- —
- A growth definition that explicitly excluded forces for
Asia would increase Asian concerns about the US willingness to defend our
allies in that area.
Other Considerations
NATO considerations aside, and as I
have indicated, there are important reasons for pursuing 3% real
growth for the entire budget in the next fiscal year:
- —
- Continued robust modernization of our forces is needed, as
stated by PD–18, “to
maintain an overall balance of military power at least as
favorable as now exists” because Soviet military strength
continues its steady growth of 3–4% per year in all aspects
of defense spending. If we do not, we may have to cut back
our new initiatives on broad programs (e.g., 0+M,
procurement, R&D) that
would adversely affect readiness and/or our future
capabilities.
- —
- It answers any domestic and international political need
to demonstrate that this Administration is taking steps to
meet the Soviet “buildup.” SALT, CTB, and
budget issues such as the M–X, AWACS,
Navy shipbuilding, and the like, may require serious
expenditure of political capital. An improved perception
that you are in favor of a strong defense will strengthen
your hand with Congress on these issues.
- —
- We are not wedded to 3% real growth forever: success of
your arms control initiatives or other positive changes in
the international
[Page 200]
political climate may justify reductions in at least some
parts of the defense effort.
NSC
Recommendation: A Level of $127–129 B
This level of funds can be spent effectively. It provides for a
request to Congress about $12 B above
last year’s appropriations, of which about $5 B would be real growth. This 4% real increase in the
total budget request will protect the 3% real increase that we need
from the inevitable Congressional cuts.
In terms of the size of the DOD
budget, the $2 B difference between
applying the 3% real growth factor to the entire budget or to the
OMB-recommended 40% NATO portion does not appear worth
the domestic and international political repercussions associated
with attempting to split the budget. We would appear to be fiddling
around the edges of the commitment simply to rationalize spending
less. Using the entire budget as a base does not preclude the bulk
of the growth in those areas most directly related to NATO.
Some may say that protecting the 3% real growth level of $127–128
B with an additional $1 B will bring on charges of “cut
insurance,” but the fact is that Congress always cuts the budget
because it has a job to do, whether cut insurance is there or not.
It would be unwise to assume that we could preempt Congressional
cutbacks.
