FY2013 Defense Budget

Comments for the Record

United States Senate Committee on Budget

The President’s Fiscal Year 2013 Budget Request for the U.S. Department of Defense

Tuesday, February 28, 2012, 10:00 AM

215 Dirksen Senate Office Building

By Michael Bindner

Center for Fiscal Equity

Chairman Conrad and Ranking Member Sessions, thank you for the opportunity to address this topic. As always, our remarks on the Defense Budget. As always, our comments are predicated on our proposals for tax and budget reform, which has the following four elements:
• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending.
• Employee contributions to Old Age and Survivors Insurance (OASI)
• A VAT-like Net Business Receipts Tax (NBRT) to fund entitlement spending.

One option for funding discretionary and entitlement spending is to split it along regional lines, reorganizing the current structure, which now varies between agencies, the federal courts and the Federal Reserve System, into seven regions of roughly equal electoral voting strength, with management by a regional Vice President and a regional legislative caucus.

Each regional caucus would pass discretionary and entitlement budgets based on regional VAT and NBRT collections with a requirement that budgets be balanced. This would lead to spending cuts or transferred operations to even out spending between regions.

In order to adjust tax rates regionally, a constitutional amendment is required, as excise taxes, and the VAT is considered an excise, must be uniform under current constitutional language. Creation of regional Vice Presidents and caucuses, however, can occur in law, although they could also be constitutionalized as well. A constitutional amendment would be required, however, to allow the Electoral College in each region to select the regional Vice President when that individual is not of the same party of the President.

Spending that is national in scope, such as overseas military deployments, naval sea operations and strategic nuclear spending, would be funded by the Income Surtax, while domestic national spending, such as the National Institutes of Health, would be funded by a national VAT.

In our proposal, the military services would also reorganize along regional lines, with an Air Wing and Army for each region. Naval base functions would be regionally funded and led as well. Deployed forces would be under separate command. Product commands would have regional and national elements. Supply and some logistics would be regional, while major weapon system RDT&E, Procurement and major Logistic overhauls would be nationally led, with budgets allocated to the using region or activity. Nuclear weapons systems procurement would remain national and would be commanded on a national basis. No regional Vice President will control nuclear weapons. National command authorities will also be nationally funded. The National Nuclear Security Administration in the Department of Energy will also be nationally funded.

The purpose of regionalization, especially if a regional VAT Amendment is ratified, is to bring funding closer to the taxpayer and thus cut down on unnecessary spending. If someone else is paying for it, local members of Congress fight hard for increased local defense spending. This will not be the case if doing so will result in a higher receipt visible value added tax paid regionally.

Costs for the Veterans Administration and for military retirement will be funded through the VAT, the NBRT and the income surtax. Non-entitlement costs will be VAT funded. Entitlements for retirees and veterans, including normal retirement pay, will be funded through the NBRT – especially if a personal retirement account system holding shares in the new employer replaces current pension, while disability retirement and health care for service in combat will be funded by the income surtax.

No regional spending breakdowns are provided with our comments, as this information is not available from public sources in the detail required to do so within the parameters we have laid out, although it is not impossible for the Department of Defense and the Department of Veterans Affairs to calculate such figures. We recommend that you ask them for a budgetary breakdown along these lines, as it would be most illustrative as you consider how forces are deployed within the United States and overseas.

We expect that during this time of war, the income surtax as currently estimated will not be adequate to fund all overseas deployments, which will necessitate continued deficit financing. Making this funding explicit, however, will serve as a good argument for increased tax rates – especially as the income surtax will also fund the payment of net interest and the eventual repayment of war debt.

Our approach to defense budgeting also will be helpful in rethinking the extent to which American forces are deployed world-wide. Such an analysis will likely indicate that current levels are unsustainable without increased contributions from host nations for not only facilities, but also to reimburse weapons system, personnel and eventual retirement costs.

While bringing funding closer to home will undoubtedly restrict what can only be regarded as out of control cost growth in Department of Defense, the cutting of too many jobs in the defense sector during what is arguable an economic Depression is not wise either. We recommend that the appropriation for the National Aeronautics and Space Administration be moved to the defense lines and that funding for manned space flight and space exploration be increased at the expense of defense research and procurement.

A significant increase in civilian space exploration is likely just what the economy needs and will impact both the aerospace and nuclear industries, as off-world colonies will undoubtedly require nuclear power if they are to be constructed on any reasonable scale, particularly lunar colonies which will face 15 day dark periods. Initially, these activities will be funded by a nationally based VAT, however as private space infrastructure grows, funding can be transitioned from direct support to loan guarantees for private space operations as citizen access to space increases. Given the risks, however, some degree of direct funding is currently essential to quickly ramp up space infrastructure and thus lower the cost.

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.