Defense Budget: Long-Term Challenges for FY2006 and Beyond
Released: 2005-04-20T00:00:00

Will Budget Deficits Constrain Long-Term Defense Budget Plans?

Leaving aside supplemental appropriations to cover war costs, the FY2006 Department ofDefense budget is about 4.5% above the regular, FY2005 non-war budget, or about 2% higher afteradjusting for inflation. Projections show a similar, modest rate of growth over the next five years(see Table 1 ).

Table 1. Real Growth/Decline in National Defense BudgetAuthority and Outlays, FY2004-FY2010*

(current and constant FY2006 dollars in billions)

Source: Congressional Research Service from Office of Management and Budget data.

* Administration projections. Figures for FY2005 and beyond do not include additionalsupplemental appropriations for Iraq and Afghanistan, while the FY2004 figures includes such funds.

Figure 1. National Defense Budget Authority and Outlays, FY1950-FY2010

This relatively modest pace comes after several years of substantially higher growth. Between FY2000, the last budget controlled wholly by the Clinton Administration, and FY2006, theregular, "non-war" DOD budget has grown by about 45% in nominal terms or about 22% afterinflation. The increases of the last few years have boosted defense spending, excluding funding forIraq and Afghanistan, to a level above the peacetime average during the Cold War and about equalto the peaks of the Vietnam War and the buildup of the 1980s. Figure 1 shows the trend in nationaldefense funding, adjusted for inflation, since FY1950.

Figure 2. National Defense Outlays Percentage of GDP,FY1950-FY2010

Even with the recent increases, however, defense spending as a share of the economy hascontinued to decline over time. Figure 2 shows national defense outlays as a share of GDP sinceFY1950. In more recent years, the decline reflects, in part, real reductions in the defense budgetbetween FY1986 and FY1998. For the most part, however, the trend is due simply to continuinggrowth in the U.S. economy that progressively reduced the economic burden of maintaining the ColdWar and post-Cold War military establishment.

Some defense advocates argue that the nation can easily afford substantially greater defensespending, since it sustained a measurably larger burden in the past. The issue is not only a matterof economics, however, but also of evolving Federal budget pressures and priorities. As Figure 3 shows, overall Federal spending has remained fairly steady at about 20% of GDP for the past 40years. Within the budget, mandatory programs, mainly entitlement programs like Social Security,Medicare, and Medicaid, plus interest on the debt have grown substantially, both as a share of

Figure 3. Federal Outlays by Major Category, Percentageof GDP, FY1962-FY2010

thebudget and as a share of the economy. Meanwhile, non-defense discretionary spending has remainedquite stable as a share of GDP, while the decline in the defense share of the budget has offset theincrease in mandatory spending. To increase defense spending substantially as a share of GDP,therefore, would require either increasing total Federal spending above historical norms or imposingoffsetting cuts in other parts of the budget. Increased spending would require either higher taxes orgreater borrowing. Growth in mandatory budget accounts may put even more pressure on other partsof the budget -- including defense -- after 2010, as members of the "baby boom" generation reachretirement age.

Moreover, defense spending may be constrained, for the foreseeable future as it has been inthe past, by pressures to reduce the Federal budget deficit. For most of the past 25 years,congressional debate about both defense and non-defense Federal spending has been dominated byapparently intractable budget deficits. In November 1985, in an effort to cope with budget deficitsthat reached a peak of 6% of GDP in FY1983, Congress passed the Gramm-Rudman-Hollings deficitcontrol act, P.L. 99-177 . The Gramm-Rudman-Hollings law set annual targets for reducing thedeficit to zero in five years and imposed automatic cuts in spending if congressional action fell short,with 50% of the cuts in defense and 50% in non-defense expenditures. Congress amended the lawin 1987, 1990, 1993, and 1997, each time pushing out the date for balancing the budget. (3)

In each of the 13 years from FY1986 through FY1998, defense spending declined ininflation-adjusted dollars. Initially driven by deficit concerns, the decline in defense spendingcontinued with the end of the Cold War and the subsequent reduction of almost one-third in the sizeof the force. Throughout the period, pressures to reduce the deficit remained a major factor shapingthe debate over defense spending. The defense budget began to turn up again in FY1999, once thebudget situation began to ease, and increases accelerated during the first four years of the BushAdministration.

For a few years, projected budget surpluses fostered an atmosphere of budgetary abundancethat propelled tax cuts, increased spending on defense, and more money for domestic priorities liketransportation and, even after surpluses had disappeared, Medicare prescription drug coverage. Thatinterlude was very brief, however. Now the Bush Administration has announced its intention toreduce the budget deficit by one-half between FY2004 and FY2009. And in Congress, a sober,late-1980s-style tone of fiscal abstinence has returned. Last year, proposals to reduce defensespending were, for the first time in many years, on the congressional agenda. Though the Senaterejected a Budget Committee recommendation to pare $7 billion from the Administration's defenseplan, the final, regular FY2005 defense appropriations bills were about $2 billion below the request. More recently, in December 2004, in the final stages of preparing the FY2006 budget request, theWhite House Office of Management and Budget directed the Defense Department to trim $30 billionfrom the six-year FY2006-FY2011 program.

If the past is a guide, current plans to reduce budget deficits may prove more difficult toimplement than official projections anticipate. As the Congressional Budget Office and others havepointed out, Administration estimates do not take into account additional war costs, the effects ofextending tax cuts after FY2009, or the costs of indexing or repealing the Alternative Minimum Tax. The Administration plan also assumes cuts in spending that have not yet been identified or enacted,and it includes no contingency for potential costs of changes in Social Security. Table 2 , based onCBO projections, shows alternative baseline deficit trends under various assumptions. (4) If deficits remain stubbornlydifficult to control, as they have proven to be in the past, then it may be too optimistic to expectdefense budgets to grow at even the moderate pace the Administration is now projecting.

Table 2. Alternative Federal Deficit Projections, FY2005-FY2015

(outlays in billions of current year dollars)

Source: Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 2006 to2015 , January 2005, Table 1-3, with revised March 2005 baseline from Congressional BudgetOffice, CBO's Current Budget Projections , March 2005, online at http://www.cbo.gov/showdoc.cfm?index=1944&sequence=0 .

* All figures include interest costs resulting from increased borrowing. Additional war cost outlaysin FY2005 are amounts resulting if the pending FY2005 $76 billion supplemental appropriationsrequest is enacted.

** AMT/tax extension interaction estimated by CRS as a proportion of the cost of tax extensions.

Should Further Increases in Military Pay and Benefits be Restrained?

Figure 4. DOD Budget Authority by Title,FY1976-FY2006

Within the defense budget, when budgets are declining or growing only slowly, there arenecessary trade-offs between, on the one hand, costs of paying personnel and operating the force and,on the other hand, investments in modernizing the force by developing and procuring new weapons. As a rule, the most variable part of the budget has been the amount spent to procure new weapons. Figure 4 illustrates the point. Funding for weapons procurement has varied dramatically, climbingrapidly when overall budgets were growing but also plunging disproportionately when budgetsdeclined.

In contrast, Military Personnel and Operation and Maintenance costs have been considerablymore stable, though there are some noteworthy trends. Military Personnel funding fell in the 1990s,as the size of the force declined following the end of the Cold War, but then began to climb. Operation and Maintenance costs leveled off for several years after the mid-1980s, again as the sizeof the force declined, but then also began to climb.

The leap in military personnel costs between FY2000 and FY2005 is particularly dramatic. Beginning with the FY2000 defense authorization bill, Congress approved substantial pay andbenefits increases, partly with Administration concurrence and partly over its objections. Theincreases include

six years of pay raises of Â½ percent above the "Employment Cost Index," aneconomy-wide measure of wage costs,

three rounds of "pay table reform" that gave much larger pay raises in middlegrades to improve retention of skilled personnel,

a multi-year plan to eliminate differences in on-base and off-base housingcosts,

approval of a phased-in plan to allow military retirees with a veteran's disabilityrating of 50% or greater to receive both retired pay and veteran's administration disability benefits,

a program known as "TRICARE for Life" under which 65 and older militaryretirees will have access to DOD provided health care in addition to Medicare,

repeal of the 1986 "Redux" retirement program which gave lower pensions tothose recruited after that time, and

repeal of a measure that lowered benefits to survivors of military retirees oncethey qualified for Social Security benefits at age 62.

Figure 5. Military Personnel Budget Authority perActive Duty Troop Indexed to FY1972

Taken together, as Figure 5 illustrates, these changes have driven up active duty personnelcosts by more than 30%, after adjusting for inflation, since 1999. The rate of increase in personnelcosts may slow over the next few years, though starting from a higher base than just a few years ago,provided Congress does not authorize additional major increases in personnel benefits. But thatproviso has become a matter of some controversy. In January, David Chu, the Under Secretary ofDefense for Personnel and Readiness, argued against further boosts in benefits for military retirees,saying "The amounts have gotten to the point where they are hurtful. They are taking away from thenation's ability to defend itself." (5) That judgment provoked some harsh recriminations from veteransorganizations and some Members of Congress. (6)

The problem for defense planners is that many of the recent, large benefit increases, such asTRICARE for Life, concurrent receipt of VA disability benefits and retired pay, Redux repeal, andincreased survivor benefits, do not necessarily promote recruitment and retention of high qualitymilitary personnel. They are, however, costly for the Defense Department, which is required tocontribute the actuarially determined cost of future benefits for current personnel into the militaryretirement fund in order to capture the full costs of personnel. (7) From the Pentagon's point ofview, if recruitment and retention falter, it would be much cheaper to expand enlistment andreenlistment bonuses. As Under Secretary Chu commented, "I'd like to believe 19-year-olds paidattention to their annuity package, [but] .... [n]ineteen-year-olds want cash to buy a pickuptruck." (8) For veteransgroups and for many legislators, however, the question has been whether military retirees and theirsurvivors are being treated equitably in view of their contributions to the nation, and Congress hasapproved benefit increases for reasons quite apart from their effects on recruitment and retention.

Will Increasing Operation and Maintenance Costs Compete with Weapons Modernization?

Figure 6. Operation and Maintenance Budget Authorityper Active Duty Troop FY1955-FY2010

The growth of Operation and Maintenance spending is a longstanding phenomenon. As Figure 6 illustrates, O&M funding per troop has increased at an average annual rate of 2.6% aboveinflation ever since the end of the Korean War. Many things explain the trend: (1) the steadilygrowing cost of operating and maintaining new generations of more capable and sophisticatedweapons; (2) efforts to improve the extent and quality of military training; (3) efforts to ensure thatthe quality of life in the military keeps up with the quality of life in the civilian sector as the militaryhas shifted to an all volunteer, older, more commonly married, and more skilled force; (4) the growthin health care costs for military personnel and their dependents; (5) requirements that the DefenseDepartment, like other Federal agencies and private organizations, reduce pollution and clean upearlier contamination; and (6) modest but steady real growth in the compensation of DOD civilianpersonnel, most of whom are paid with O&M funds. The cost of maintaining aging equipment inrecent years does not appear to be a major factor. (9)

The growth in Military Personnel costs after 1999, together with ongoing increases inOperation and Maintenance costs, account for the largest share of the fairly substantial increases inmilitary spending in the first years of the Bush Administration. As Table 3 shows, under theAdministration plan, the overall Department of Defense for FY2006, not including war costs, isabout 45% greater than the FY2000 budget. It is about 22% higher after adjusting for inflation. Much of the increase, however, has gone, not to buy or develop new weapons, but simply to pay thecost of paying the troops and operating the force.

Table 3. Changes in Defense Funding by Title,FY2000-FY2006

(current year dollars in billions)

Source: Congressional Research Service calculations based on data from the Department of Defenseand the Office of Management and Budget.

Specifically, Table 3 compares the FY2006 request with the FY2000 budget, broken downby titles of the annual defense appropriations bill. Of the $131 billion difference in the DOD portionof the budget, $77 billion, almost 60%, is in the "Military Personnel" and "Operation andMaintenance" accounts (see Table 4 ). In effect, this is the cost of maintaining the current force,without significantly increasing the pace of weapons modernization.

The remaining 40% of the increase has still permitted substantial increases in weaponsprocurement and, particularly, in research and development, in which the growth rate, though froma smaller starting point, far outstripped any other category of the defense budget. In the future,however, assuming that defense spending levels off as the Administration is projecting, increasesin personnel and operating accounts may leave relatively little room for new initiatives in weaponsacquisition. Trade-offs between major weapons programs may become more contentious. Increasedfunding for Army programs, for example, may come only at the expense of funding for Navy andAir Force programs. In addition, cost growth in major programs will drain funds for other priorities. An environment in which a growing budget allows new priorities to be funded without cuttingsomething else is very different from one in which any new initiative may be seen as a threat toestablished programs -- and it may be less fertile ground for innovation.

Table 4. Allocation of Changes in Defense Funding by Title,FY2000-FY2006

(budget authority, current year dollars in billions)

Source: Congressional Research Service calculations based on data from the Department of Defenseand the Office of Management and Budget.

Bow Waves, Train Wrecks, and Ship Wrecks: Are Long-Term Weapons Plans Affordable?

A perennial issue in defense policy is whether future weapons acquisition budgets will belarge enough to finance all of the programs that are in the pipeline. There are a couple of variationson the theme.

One issue is whether a "bow wave" of acquisition costs will become unsustainable at somepoint in the future. The term "bow wave" technically refers to the normal funding profile of a majorprogram: funding is small in the early stages of development, climbs during engineeringdevelopment, peaks during full rate procurement, and then declines again as production winds down. When several weapons programs appear likely to grow in concert, then a large collective "bowwave" may appear to be looming in the future.

A second issue is whether projected weapons procurement budgets are large enough toreplace aging weapons as they reach the ends of their nominal service lives. A 1999 report by theCenter for Strategic and International Studies (CSIS), entitled The Coming Defense Train Wreck ,argued that projected procurement budgets would fall as much as 50% a year short of the amountneeded to maintain a modernized force. (10) That study evoked considerable controversy. Very differentestimates of the amounts needed to finance the weapons inventory would result from minor changesin assumed rates of cost growth from one generation of weapons to the next, in assumptions aboutpossible extensions of nominal service lives with upgrades, and in assumptions about whether someelements of the force (such as strategic nuclear weapons) need to be updated at all. (11)

Since 1999, the Congressional Budget Office has done a series of closely related studies ofwhat it calls a "steady state" procurement rate (i.e., the rate at which weapons would have to bereplaced to maintain a modernized force of a given size) and also of the cumulative cost of thePentagon's actual weapons plans. (12) These assessments have been much less alarmist than the CSIS"train wreck" scenario. CBO's initial "steady state" studies found a shortfall, but not of themagnitude CSIS projected. CBO's most recent affordability studies, however, have warned againsta potentially substantial "cost risk" if program costs grow above what the services have beenprojecting.

Now it appears that the future "cost risk" that CBO warned against is becoming an imminentthreat. Cost growth in major weapons programs has become so endemic and so severe that it maybe producing, if not a train wreck, then, perhaps, a ship wreck. A key issue in Congress this year is"Whatever happened to the shipbuilding budget?" The Navy's FY2006 shipbuilding plan calls forconstructing just four new ships, two fewer that the Navy planned for the FY2006 budget last year,and far short of the 8-9 ships per year that the Navy has said are needed to preserve the current sizeof the fleet in the long term. (13)

Navy plans have also been revised to procure fewer ships over the following five years. ADefense Department budget decision in December 2004, called "Program Budget Decision 753" orPBD-753, reduced the planned procurement rate of DD(X) destroyers from two per year to one, cutplanned submarine production from three boats every two years to one per year, eliminated fundsfor an amphibious ship from the FY2008 plan, and delayed by one year planned funding for a newaircraft carrier.

Navy officials have said that cost growth in Navy shipbuilding is at the root of the problem. In testimony before the Senate Armed Services Committee on February 10, 2005, the outgoing Chiefof Naval Operations, Admiral Vernon Clark, said that costs of the major types of ships had grownby as much as 400% beyond inflation over the past thirty years, that greater capabilities explain onlypart of the increase, that so few ships are being built that overhead costs are spread too narrowly, andthat the Navy cannot afford more than 250 ships in the long run unless costs are brought undercontrol. (14) In hisprepared statement for the hearing, Admiral Clark said:

Among the greatest risks we face is the spiraling costof procurement for modern military systems, and shipbuilding is no exception. When adjusted forinflation, for example, the real cost increase in every class of ship that we have bought since I wasan Ensign, United States Navy, has been truly incredible. It becomes more so when taken incomparison to other capital goods like automobiles, where the inflation-adjusted cost growth hasbeen relatively flat over the same period of time. Shipbuilding cost increases have grown beyond ourability to control as compared to decades prior. As we seek greater combat capability and greateroperational efficiencies through upgraded power, propulsion, and computing technologies, we finda ratio of cost growth beyond our seeming control, which may not be fully explainable solely byreduced economies of scale. (15)

In recent years, the pace of growth in shipbuilding costs has not abated. For the past severalyears, the Navy has requested additional appropriations to cover cost growth in ships already underconstruction. In the FY2006 budget, the Navy is requesting $394.5 million for "Completion of PriorYear Shipbuilding Programs," and the Navy's long-term program includes and additional $449.8million in FY2007 and $502.5 million for cost growth. Moreover, the Navy is now beginning toreestimate future shipbuilding costs in light of recent experience. The President of NorthropGumman's Newport News shipbuilding division recently acknowledged that the CVN-21, thenext-generation carrier, will likely cost more $13 billion, compared to last year's estimate of $11.7billion. (16) And Navyofficials are beginning to increase estimates of DD(X) destroyer costs substantially. As recently as2003, the Navy estimated costs of $1.5-1.8 billion per ship after the initial design models of the shipwere built, but more recently has said $2.2-2.6 billion. Now it appears the cost of later ships in theproduction run could exceed $3 billion each. (17)

PBD-753 made cuts in a number of other major acquisition programs as well, notably,terminating F/A-22 fighter production after FY2008, terminating C-130J cargo aircraft productionafter FY2006, cutting $5 billion over the six year FY2006-FY2011 period from missile defense, andtrimming funds for a number of satellite programs.

The fate of the F/A-22 may be an object lesson. Originally, as the aircraft was beingdeveloped in the late 1980s, the Air Force planned to buy 750 aircraft as replacements for 1970s-eraF-15s. When the Defense Department formally decided to begin engineering development in 1990,the program timeline was delayed by two years and the plan was for 648 aircraft. The ClintonAdministration's 1993 Bottom-Up Review of post-Cold War requirements reduced the planned totalto 442 aircraft, enough for four deployable wings of 72 aircraft each, with spare aircraft for training,maintenance, and replacement reserves.

Subsequently, projected program costs grew, procurement plans were delayed and trimmedfurther, Congress imposed a ceiling on total production costs, costs grew yet again, and the plannedtotal production run was further reduced. By 2004, the total planned procurement was reduced to279 aircraft, about one-third of the original plan, to fit within the cost cap, though the Air Force stillwanted more than 330 to equip three deployable wings. The initial Air Force development estimatesin 1990 projected a total program unit cost of $93 million per aircraft in FY1990 prices, or about$140 million in FY2006 prices. In the end, the spiral of cost increases, production cuts, and furtherunit cost increases had pushed the price up to over $300 million per aircraft in FY2006 dollars. Nowthe Defense Department, against the wishes of the Air Force, has decided to halt production afterbuilding about 180 airplanes. (18)

Cost growth has also been severe in many other programs, including,

Air Force/Navy/Marine Corps F-35 Joint Strike Fighter: Official DODestimates of JSF costs, provided to Congress in quarterly Selected Acquisition Reports, grew by $45billion, from $199.7 billion in the September 30, 2003 estimates, to $244.8 billion in the December31, 2003 estimates, in current year dollars, not adjusted for inflation, a 23%increase.

Space launch systems: Over the same period projected Air Force EvolvedExpendable Launch Vehicle (EELV) program costs grew by $11.6 billion, from $20.8 billion to$32.3 billion, a 56% increase.

Space-Based Infrared System-High (SBIRS-High), Space Tracking andSurveillance System (STSS) (formerly called the Spaced-Based Infrared System-Low (SBIRS-Low)),and Airborne Laser (ABL) programs: The SBIRS-High, an Air Force-run program to develop a newmissile launch detection and tracking satellite that would be tied into a national missile defense, hasmore than doubled in cost since 1995 to over $8 billion, including a $2 billion estimate increase in2001, and it still appears to be experiencing delays and cost growth. Last year, the Air Forceconfirmed reports that the cost would grow by another $1 billion and that satellite launches wouldbe delayed another two years. There have been similar, though less severe delays and cost growthin the Missile Defense Agency-run STSS program to develop a low-earth-orbit missile trackingsatellite, though costs are now classified. And the Air Force-run, Missile Defense Agency-fundedAirborne Laser program has been delayed and has suffered enough cost growth that the Air Forcehas decided to use available R&D funds for one rather than two aircraft.

The Army Future Combat System (FCS): The FCS program remains at a veryearly stage of development, with several differing design alternatives still under consideration. Untillast year, production was planned to begin in 2008 with an initial operational capability in 2010. Inan April 2004 report, GAO found that 3/4 of the necessary technologies for the system wereimmature when the program started and that prototypes would not be available for testing untilshortly before production was planned. (19) Subsequently, the Army announced a major restructuring of theprogram which will delay major components for at least two years and increase total program costsby $25 to $30 billion. (20) A year ago, estimated procurement costs (not including R&D) were estimated at $92 billion. Recently, Army officials said that procurement could total as much as $145 billion, not including$25 billion for an associated communications system. (21)

Taken together, constraints on future amounts of funding for procurement and for R&D, pluswidespread, substantial cost growth in major weapons programs, (22) draw into question theviability of long-term service weapons acquisition plans. The program cuts imposed in PBD-753in December may very well turn out to be only the first in a number of fairly substantial changesneeded to keep acquisition costs within bounds.

What Are the Implications of Changes in Military Strategy for Budget Priorities?

A final long-term question is how changes in the international environment -- and in U.S.perceptions of it -- will affect defense budget priorities. Currently, the Defense Department isengaged in a congressionally-mandated "Quadrennial Defense Review" (QDR), which is requiredto be completed no later than February 2006, but which may well be reported before then. This QDRis the fifth such reassessment of U.S. defense policy in the post-Cold War era -- the others were the"Base Force" analysis of 1990, the Clinton Administration's "Bottom-Up Review" of 1993, and twoprevious QDRs in 1997 and 2001.

While the 2001 QDR was released after the terrorist attacks of September 11, 2001 --specifically on September 30 -- it was prepared very early in the Bush Administration, and it did notreflect the full weight of developments in the post-9/11 period. Significantly, it also preceded theBush Administration's first statement of the "National Security Strategy of the United States," whichthe White House issued in September 2002, (23) and which, among other things, called for the United States toact preemptively to prevent potentially unacceptable threats to U.S. security from arising. And, ofcourse, it preceded the wars in Afghanistan and Iraq.

So the 2005-2006 QDR will be the first to reflect fully the lessons the Defense Departmenthas drawn from its post-9/11 experiences. And it will be the first to reflect, as well, the full imprintof changes in Pentagon organization and procedures that have been instituted under Secretary ofDefense Donald Rumsfeld.

Perhaps the key issue in the QDR is to what extent Defense Department priorities may bereshaped in view of new assessments of long term challenges to U.S. security. Over the pastyear-and-a-half or so, senior defense officials have laid out what they call a new "strategicframework" that identifies "four challenges" to U.S. security. (24) Priorities among the fourchallenges in turn, are based on the likelihood that threats will appear and on the perceivedvulnerability of the United States to such dangers.

"Traditional" challenges from regional competitors like Iraq under Saddam areseen as unlikely and U.S. forces are seen as fully capable of coping with them, so vulnerability islow.

"Irregular" challenges of unconventional warfare are highly likely, but thevulnerability of the U.S. homeland is seen as low.

"Disruptive" threats from a future global peer or near-peer competitor thatwould attack U.S. military advantages -- through, for example, attacks on satellites or cyberwarfare-- are seen as unlikely, but vulnerability is seen as high.

And "catastrophic" threats from states or non-state actors with weapons of massdestruction are seen as likely and U.S. vulnerability as high.

It is possible to read into this list of priorities some far-reaching implications for future U.S.defense programs. The F/A-22 and the Navy ships that the Pentagon cut from its plan in December,2004, for example, might well be classified as forces for traditional challenges. An obviousquestion, then, is whether the reductions imposed by PBD-753 are harbingers of deeper contractionsin major programs yet to come. For their part, Navy officials have said that they are redesigningforces to be more relevant to future challenges, so conflict in the littorals (i.e., in coastal areas) andthe concept of sea-basing of forces to project power ashore are being emphasized. (25) Army officials, similarly,have cast the current wholesale reorganization of the Army as an attempt to make the Army moredeployable in order cope with irregular threats that, in DOD's view, are highly likely. (26) It remains to be seen,however, how disruptive and catastrophic challenges will be reflected in future budget trade-offs.

Meanwhile, in Congress and elsewhere, China's potential to pose a military challenge to theUnited States has become a matter of increasing discussion, particularly since China passed ananti-secession law threatening military action if Taiwan declares independence. (27) Recent assessments fromthe Defense Department (28) and the intelligence community (29) have stressed Chineseinvestments in military capabilities, including air and naval forces, that might challenge U.S. navalpredominance in East Asia. (30) A potential future threat from China may be cited as a rationalefor more and more substantial shares of U.S. defense budgets.