The Defense Budget and the Budget Control Act: Frequently Asked Questions
Released: 2018-07-13T00:00:00

Background

National defense is one of 20 major functions used by the Office of Management and Budget (OMB) to organize budget data―and the largest in terms of discretionary spending. The national defense budget function (identified by the numerical notation 050) comprises three subfunctions: Department of Defense (DOD)-Military (051); atomic energy defense activities primarily of the Department of Energy (DOE) (053); and other defense-related activities (054) such as Federal Bureau of Investigation (FBI) counterintelligence activities. Discretionary spending is, for the most part, provided by annual appropriations bills and the focus of Congress's efforts to fund the federal government. By contrast, mandatory (or direct) spending, which includes entitlement programs such as Social Security, Medicare, and Medicaid, is generally governed by existing statutory criteria.

Since the terrorist attacks of September 11, 2001, outlays —money spent by a federal agency from funds provided by Congress—for discretionary defense programs in nominal dollars (not adjusted for inflation) has almost doubled from $306 billion in FY2001 to $590 billion in FY2017. Defense discretionary outlays are projected to reach $655 billion in FY2021. Yet as a percentage of total federal outlays, discretionary defense outlays declined over this period from 16.4% in FY2001 to 14.8% in FY2017. They are projected to further decrease to 13.2% in FY2021, as mandatory programs and net interest consume a larger share of the total (see Figure 1 ).

Between FY2009 and FY2012, annual federal budget deficits topped $1 trillion and averaged 8.5% of Gross Domestic Product (GDP), the highest level since World War II. The deficits are attributable in part to reduced tax revenues from the 2007-2009 recession and increased spending from the economic stimulus package known as the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). As part of an agreement to increase the statutory limit on public debt, the Budget Control Act of 2011 ( P.L. 112-25 ) aimed to reduce annual federal budget deficits by a total of at least $2.1 trillion from FY2012 through FY2021, with approximately half of the savings to come from defense.

Congress has previously used budget enforcement mechanisms—such as a statutory limit on annual appropriations for discretionary activities—to mandate a specific budgetary policy or to obtain a fiscal objective. The BCA amended the Balanced Budget and Emergency Deficit Control Act of 1985 ( P.L. 99-177 ) by reinstating spending limits on discretionary budget authority beginning in FY2012. Congress provides budget authority by law to federal agencies to obligate money for goods and services. Congress does not directly control outlays , which occur when obligations are liquidated, primarily through issuing checks, transferring funds, or disbursing cash. For spending limits in FY2012 and FY2013, the BCA originally specified separate "security" and "nonsecurity" categories. The security category was broad in scope and included budget accounts of the Department of Defense (DOD), the Department of Homeland Security (DHS), the Department of Veterans Affairs (VA), the National Nuclear Security Administration, the intelligence community management account, and international affairs (budget function 150). After the Joint Select Committee on Deficit Reduction did not reach a deficit-reduction deal and triggered backup budgetary enforcement measures of steeper reductions to the initial BCA caps beginning in FY2013, the "security" category was revised to the narrower "defense" category, which included only discretionary programs in the national defense budget function (050).

Frequently Asked Questions

What is the debate over defense spending caps?

The discretionary spending limits established by the Budget Control Act of 2011 ( P.L . 112-25 ) have been a point of contention since enactment.

Critics of the legislation argue reductions to defense investments "present a grave and growing danger to our national security." They also note the spending restrictions disproportionately affect defense programs, which in FY2017 accounted for 16% of budgetary resources (excluding net interest payments) and 49% of BCA spending reductions. Senator John McCain and Representative William "Mac" Thornberry, the chairs of the Senate and House Armed Services Committees, respectively, have said the law has "failed." Defense Secretary James Mattis has said: "Let me be clear: As hard as the last 16 years of war have been on our military, no enemy in the field has done as much to harm the readiness of U.S. military than the combined impact of the BCA's defense spending caps, worsened by operating for ten of the last 11 years under continuing resolutions of varied and unpredictable duration."

Proponents of BCA argue its limits are necessary in light of recurring deficits and growing federal debt: "The spending caps put in place by the BCA, and the punitive nature of the sequestering that follows if they are exceeded, are well-designed measures that encourage responsible spending." Representative Mark Meadows, chair of the House Freedom Caucus, which opposed the latest budget deal to raise the spending caps, said, "I want to fund our military, but at what cost? Should we bankrupt our country in the process?" Lawrence Korb, an Assistant Secretary of Defense during the Reagan Administration, said the BCA has "affected defense capability somewhat," but noted Congress has blunted the law's impact by increasing the caps and by exempting from the restrictions funding for Overseas Contingency Operations (OCO), allowing the Department of Defense (DOD) to use such funds for base-budget activities.

Attempts to fully repeal BCA have not succeeded. Lawmakers have enacted increases to the defense and nondefense sending caps for each year from FY2013 to FY2019.

How does the BCA affect defense spending?

The Budget Control Act of 2011 ( P.L. 112-25 ) contained several measures intended to reduce deficits by a total of at least $2.1 trillion from FY2012 to FY2021, with approximately half of the savings to come from defense. A key component of the legislation set limits on discretionary budget authority to reduce projected spending by $0.9 trillion over the period. As backup budgetary enforcement measures, the BCA also required at least $1.2 trillion in additional savings if a congressionally mandated panel, the Joint Select Committee on Deficit Reduction, did not reach agreement on a deficit-reduction plan. The spending limits (or caps ) apply separately to defense and nondefense discretionary budget authority. The caps are enforced by a mechanism called sequestration , which automatically cancels previously enacted spending by an amount necessary to reach prespecified levels. The defense discretionary spending limits apply to national defense (budget function 050) but not to funding designated for Overseas Contingency Operations (OCO) or emergencies. Because the committee did not agree on a plan to reduce the deficit, the BCA required steeper reductions to the discretionary spending limits each year from FY2013 through FY2021 (see Table 1 ) .

What are the BCA limits on defense discretionary spending?

Congress has repeatedly amended the Budget Control Act of 2011 ( P.L . 112-25 ) to revise the discretionary spending limits. Table 1 depicts the limit s as amended (in bold and shaded) for the defense category, which includes discretionary programs of the national defense budget function (050) and excludes funding for Overseas Contingency Operations (OCO) or emergencies .

Does the BCA limit Overseas Contingency Operations (OCO) funding?

The BCA stipulates that certain discretionary funding, such as appropriations designated as Overseas Contingency Operations (OCO) or emergency requirements, allow for an upward adjustment of the discretionary limits. OCO funding is therefore described as "exempt" from the discretionary spending limits. The BCA does not define what constitutes OCO funding. Instead, it includes a requirement that Congress designate OCO spending on an account-by-account basis, and that the President subsequently designate the spending as such. Further, the BCA does not limit the level or amount of spending that may be designated as OCO.

The designation of funding for OCO /Global War on Terrorism (GWOT) has shifted over time, reflecting different viewpoints about the extent, nature, and duration of conflicts in countries such as Afghanistan, Iraq , and Syria . Recently, Congress and th e President have designated funding for OCO that includes activities previously in the DOD base budget. By designating funding for ongoing activities not directly related to contingency operations as OCO, Congress and the President can effectively increase topline defense, foreign affairs, and other related discretionary spending, without triggering sequestration.

The Trump Administration's initial FY2019 DOD budget request, released on February 12, 2018, included $89.0 billion designated for OCO. In a budget amendment published April 13, 2018, the Administration removed the OCO designation from $20.0 billion of funding in the initial request, in effect, shifting that amount into the base budget request after Congress agreed to raise the spending caps. In a statement on the budget amendment, White House Office of Management and Budget Director Mick Mulvaney said the FY2019 budget request fixes "long-time budget gimmicks" in which OCO funding has been used for base budget requirements. Beginning in FY2020, "the Administration proposes returning to OCO's original purpose by shifting certain costs funded in OCO to the base budget where they belong," he wrote.

What are the BCA limits on the Department of Defense (DOD)?

Department of Defense (DOD)-M ilitary activities ( budget subfunction 051) historically consti tute approximately 95% of the national defense budget (function 050) . Although the BCA does not establish limits on subfunctions (051, 053 and 054), the BCA limits on national defense have, in practice, been proportionally applied to subfunctions. CRS estimates the BCA limits on DOD-Military base budget activities at approximately $600 billion in FY2018, $617 billion in FY2019, $549 billion in FY2020, and $564 billion in FY2021.

How have the defense spending caps changed over time?

The Bipartisan Budget Act of 2018 ( P.L. 115-123 ), enacted on February 9, 2018, amended the BCA to raise defense discretionary spending caps for FY2018 and FY2019, with increases more than three times larger than previous changes (see Figure 2 ). To date, CRS estimates Congress has amended the Budget Control Act of 2011 ( P.L . 112-25 ) to increase discretionary defense spending limits by a total of $264 billion (thus lowering their deficit-reduction effect by a corresponding amount). The increases over previous caps break down as follows:

$85 billion (15%) in FY2019; $80 billion (15%) in FY2018; $15 billion (3%) in FY2017; $25 billion (5%) in FY2016; $10 billion (2%) in FY2015; $23 billion (5%) in FY2014; and $26 billion (5%) in FY2013.

In 2011, the Congressional Budget Office (CBO) estimated discretionary budget authority for the national defense budget function (050), excluding funding for Overseas Contingency Operations (OCO), would total $6.26 trillion over the 10-year period from FY2012 through FY2021, assuming the 2011 level would grow at the rate of inflation (see Figure 2 ). Based on this benchmark, CRS estimates the automatic reductions to the initial caps of the BCA would have decreased projected discretionary defense base budget authority by approximately $868 billion (14%) to $5.39 trillion over the decade—and the caps as amended would reduce projected defense discretionary base budget authority by approximately $604 billion (10%) to $5.65 trillion over the period.

What is a sequester?

A sequester provides for the enforcement of budgetary limits established in law through the automatic cancellation of previously enacted spending, making largely across-the-board reductions to nonexempt programs, activities, and accounts. A sequester is implemented through a sequestration order issued by the President as required by law. The purpose of sequestration is to deter enactment of legislation violating the spending limits or, in the event that such legislation is enacted violating these spending limits, to automatically reduce spending to the limits specified in law. Each statutory limit—defense and nondefense—is separately enforced so that the breach of the limit for one category is enforced by a sequester of resources only within that category.

The absence of legislation to reduce the federal budget deficit by at least $1.2 trillion triggered the sequestration process in 2013. In accordance with the Budget Control Act of 2011 ( P.L . 112-25 ) , then-President Barack Obama ordered the sequestration of budgetary resources across nonexempt federal government accounts on March 1, 2013—five months into the fiscal year. DOD was required to apply a $37 billion sequester to $528 billion in available (subfunction 051) budgetary resources—a reduction of 7%.

Can the National Defense Authorization Act (NDAA) trigger a sequester?

Legislation authorizing discretionary appropriations, such as the National Defense Authorization Act (NDAA), does not provide budget authority and therefore cannot trigger a sequester for violating discretionary spending limits. A sequester will occur only if either the defense or nondefense discretionary spending limits are exceeded in enacted appropriations bills.

How has defense discretionary spending changed since enactment of the BCA?

Nominal defense discretionary outlays , including funding for Overseas Contingency Operations (OCO), decreased from $671 billion in FY2012 to $590 billion in FY2017, a decline of $80 billion (12%). They are projected to reach $655 billion in FY2021, a decline of $16 billion (2%) from FY2012. Adjusting for inflation (in constant FY2018 dollars), defense discretionary outlays peaked at $784 billion in FY2010 during the height of the U.S.-led wars in Iraq and Afghanistan (see Figure 3 ). Following enactment of the BCA, defense discretionary outlays decreased from $734 billion in FY2012 to $599 billion in FY2017, a decline of $135 billion (18%) in inflation-adjusted dollars. Despite a projected uptick in FY2018 and FY2019, they are projected to reach $620 billion in FY2021, $114 billion (16%) less than the FY2012 level in inflation-adjusted dollars. The figure also shows defense discretionary outlays as a percentage of all federal outlays. Over the past half century, federal outlays devoted to discretionary defense programs have trended downward from nearly half of total outlays in FY1962 during the Vietnam War, to 19% in FY2012 after enactment of the BCA, to 15% in FY2017. They are projected to further decline to 13% in FY2021, as mandatory spending and net interest consume a larger share of all federal outlays (see also Figure 1 ).

Similarly, discretionary defense outlays as a share of Gross Domestic Product (GDP) have trended downward, from 9.1% of GDP in 1968 to 4.2% of GDP in FY2012 after enactment of the BCA to 3.1% of GDP in FY2017. By FY2021—the last year of the BCA limits—CBO projects discretionary defense outlays to decline to 2.9% of GDP.

The deficit-reduction effects of the BCA have been offset by other factors affecting the federal budget. While the deficit decreased from $1.1 trillion (6.8% of Gross Domestic Product) in FY2012 to $665 billion (3.5% of GDP) in FY2017, it is projected to increase to $1.1 trillion (4.9% of GDP) in FY2021. Over the same period, federal debt held by the public has increased from $11.3 trillion (70.4% of GDP) in FY2012 to $14.7 trillion (76.5% of GDP) in FY2017 and is projected to further increase to $19 trillion (83.1% of GDP) in FY2021.

What are the Administration's plans for defense spending?

The Trump Administration has proposed increasing defense spending beyond the statutory limits of the Budget Control Act of 2011 ( P.L. 112-25 ) as amended. The President's FY2019 budget request proposed increasing caps on defense discretionary base budget authority by $84 billion (15%) to $660 billion in FY2020 and by $87 billion (15%) to $677 billion in FY2021. It also proposed defense funding for Overseas Contingency Operations (OCO) totaling $73 billion in FY2020 and $66 billion in FY2021.

Acknowledgements

This is an update to a report originally authored by [author name scrubbed], former CRS Specialist in Defense Readiness and Infrastructure. It references research previously compiled by [author name scrubbed], former CRS Specialist in U.S. Defense Policy and Budget; [author name scrubbed], CRS Analyst in Public Finance; and [author name scrubbed], CRS Specialist on Congress and the Legislative Process. [author name scrubbed], Research Assistant, helped compile the graphics.