Budgeting Alternatives for the Department of Defense

Issue Briefs | National Security

No. 190
Tuesday, April 05, 2016
by Jacob Kohlhepp and David Grantham

The United States careens from one budget crisis to another while the national debt — now $20 trillion — continues to rise. This trend is a stark reminder that the federal budget process needs a complete overhaul. And, with one of the largest budgets in government, the Department of Defense (DOD) could be the first place to test a sensible process reform called zero-based budgeting.

Indeed, given the DOD’s $530 billion budget for fiscal year 2016, the savings could range from $31.8 billion to $53 billion, based on the experience of corporations and national governments that have adopted zero-based budgeting.

The Current Budget System Encourages Spending. Under the current system, known as “baseline budgeting,” the government sets the previous year’s spending as the starting point for the future. Budget preparers assume all of the same programs and operating procedures, and only adjust the next year’s fiscal outlook upward to account for actual spending, inflation and population growth. Since inflation and population growth are almost always positive, the budget almost always rises.

The U.S. government prefers this method because it avoids having to reinvent the wheel each year. It also costs very little and, for the most part, prevents officials from rigging budget documents or reports.

One of the most powerful criticisms of baseline or incremental budgeting is the incentives it generates. Specifically, the system goes beyond favoring the status quo — it actually encourages spending growth. By starting the conversation at the previous year’s spending level, which in the DOD’s case does not account for new conflicts or unanticipated flare-ups, baseline budgeting tilts the scales in favor of more spending. Further, it allows politicians to have their cake and eat it too: They can appear to cut the budget when all they are doing is changing the rate of spending growth.

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