It comes as no surprise that the Biden administration’s $849.8 billion Fiscal Year 2025 defense budget request constitutes a no-growth budget. Pointing to the 2023 Fiscal Responsibility Act (FRA) as a constraining factor, the Department of Defense leadership asserts that the budget could only grow by 0.9 percent.
But, in fact, the budget is declining in real terms. The only question is the magnitude of that decline.
How much the budget actually will embody a decline depends upon assumptions about both the rate of inflation and the prospects for congressional approval of the administration’s request. With respect to inflation, the Office of Management and Budget appears to be assuming a rate of 2.1 percent over FY24. That would mean that the budget actually represents a real decline that would amount to just over $9 billion. The Congressional Budget Office has assumed a slightly higher rate of inflation, resulting in approximately an $11 billion drop from the FY24 administration’s defense budget request.
In practice, however, defense inflation is greater than the inflation rate for Personal Consumption Expenditure, which forms the basis of both the OMB and CBO estimates. The DOD most recently estimated defense inflation for FY25 at 2.41 percent, resulting in a real decline of about $13 billion.
Finally, it is not at all clear when the Federal Reserve will conclude that inflation is sufficiently under control to justify lowering interest rates. It had been expected that rates would have come down by now, but Fed Chairman Jerome Powell does not expect that rates will be reduced until June at the earliest, because there remains a serious risk of increased inflation. Should inflation remain higher than anticipated levels, and do so for an extended period, that too could lead to a further real decline in defense spending.
Additionally, at what point Congress actually will approve the FY25 budget is also uncertain on several counts. To begin with, Congress thus far has failed to approve a defense budget for FY24, and it remains unclear whether the Congress will agree on a defense budget figure later this month — that is, a half year after the new fiscal year began. Moreover, should Congress fail to pass a FY24 budget by April 30, the defense budget for this year would suffer a 1 percent cut.
Congress could continue to pass one or more additional supplemental appropriations, avoiding the 1 percent cut — which is actually a larger reduction in real terms — but freezing spending at FY24 levels, which would prevent the initiation of all but a very few new programs starts. On the other hand, should Congress pass a defense budget before the April deadline — and, in addition, approve the administration’s proposed supplemental request for assistance to Ukraine, Israel and Taiwan — the budget could rise to as much as $953 billion.
A change in administration would further complicate the budget approval timetable. It is far from clear what position a new Trump administration might take regarding defense spending. Trump has been highly critical of the NATO allies’ defense budget levels, but he has been less specific as to the preferred level of defense spending that he might tolerate. Some of his strongest supporters indicate that the Biden administration’s budget request is too big, however. They argue that the United States simply cannot continue to maintain its current level of worldwide military commitments and should restrict its priorities, most notably to that of deterring Chinese aggression. A Trump administration could therefore release a budget amendment to reduce defense spending even further below FY24 levels.
On the other hand, even were President Biden to return to office, the force of events in Europe, the Middle East and East Asia might impel his administration to request an increase in defense spending. It could do by issuing a budget amendment, but that would require Congress to jettison the restriction that the FRA imposed. Alternately, it could evade the FRA spending limits by issuing a supplemental spending request, much as it has done for Israel, Ukraine and Taiwan.
At a minimum, a second Biden administration could call for additional funds to offset the real spending decline that its current request incorporates. While such a move would not satisfy committed defense hawks, it would certainly win the grudging support of pro-defense Democrats and Republicans.
In either case, the FY25 defense budget is unlikely to resemble the administration’s current request. Given the country’s growing isolationist mood, however, it is important that those who are committed to maintaining American leadership of the free world argue against the proposed reductions — especially in research and development and procurement — that are embodied in the administration’s current proposal.
Now is not the time to contemplate future budget cuts of any size while China advances its military program despite its economic difficulties, Russia continues to convert its economy to a war footing and other nations threaten America’s global interests. And if the administration is unable or unwilling to circumnavigate the FRA, Congress should take the lead in doing so.
Dov S. Zakheim is a senior adviser at the Center for Strategic and International Studies and vice chairman of the board for the Foreign Policy Research Institute. He was undersecretary of Defense (comptroller) and chief financial officer for the Department of Defense from 2001 to 2004 and a deputy undersecretary of Defense from 1985 to 1987.