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. 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.