As Fiscal Cliff negotiations continue, much of the focus has been on tax hikes associated with the lapse of the Bush tax cuts.
While some on the left frame the tax hikes on the top two brackets as tax hikes on "millionaires and billionaires," we know better. Making $250,000 a year does not make you a millionaire or billionaire. If you've got that level of income, which is feasible for someone in their late twenties or thirties if they're working in banking, PE, or a related field, you're a HENRY (High-Earner-Not-Rich-Yet.) So, understandably, an Analyst with hopes of breaking into PE or a college student with Managing Director dreams doesn't want to see tax rates go up.
Now, if you read my post on Tuesday, then you know that I'm in favor of either going over the cliff or implementing the Bowles-Simpson plan. Both would entail higher taxes, but they'd hit everyone, not just the country's "millionaires and billionaires."
There would also be plenty of guaranteed across-the-board spending cuts. Mandatory cuts to defense spending have proven controversial, but are they? Will a $500 billion cut to defense spending over the next decade really hollow out our military, or is that kind of talk unwarranted?
$500 billion. It sounds gigantic until you put it into context. It's $500 billion over the next ten years. Instead of thinking of it as $500 billion, think of it as $50 - $60 billion a year for ten years.
$50 billion might still sound large, but considering the sheer size of the Department of Defense's annual budget, which topped $700 billion in 2012, it doesn't seem that big anymore. And, if you were to include defense-related activities conducted by other agencies along with interest expense on debt raised for past wars, total defense-related spending clocks in at over $1 trillion. Complete and utter madness.
Now, I am no dove. I believe in a strong military. I also believe in a smart military. What I don't believe in is using the military and defense spending as a roundabout jobs program.
It's no secret that the massive growth of the defense budget over the last decade led to growth at defense contractors. And it's no secret that much of the manufacturing of defense products takes place at home in the US, and it should. But, the fact that defense spending leads to manufacturing jobs in the States is not an argument in favor of outsized defense spending.
And while few have come out and said it so directly, the sheer madness of arguing that sequestration cuts will "hollow out our military," when we already spend more than the next 13 countries combined on our defense budget, should provide a few hints.
I find it hard to believe that "forcing military managers to buy fewer weapons, including four fewer F-35 aircraft, one less P-8 aircraft, 12 fewer Stryker vehicles, and 300 fewer Army medium and heavy tactical vehicles" and "delaying the new CVN-78 carrier, the Littoral Combat Ship program, and the DDG-51 destroyer procurement" equates to a hollowing out of our military. How many manned aircraft do we really need in this day and age? Given that a single F-35 costs over $150 million, the US is slated to buy over two thousand of them, and we aren't going to war with China or Russia anytime soon, I think we could find a way to cut a few. With the cost of a single F-35, you could purchase dozens of Predator drones. Dozens. The cost of unmanned vehicles, which have played a tremendous role in anti-terror operations and the ongoing wars, is next to nothing compared to the cost of manned vehicles. The ROI, so to speak, of UAVs blows the F-35 out of the water.
Why is there this assumption that we must continually build up an ever growing gigantic cold-war style military complex when our enemies are insurgents that don't wear uniforms and whose weapon of choice is a suicide bomb over a Russian MIG. Again, I'm not arguing that we should outright scrap programs like the F-35. I'm saying we should be more realistic about our needs. While the F-35 program might create jobs at home, is it worth the long-term costs to our debt and deficit? Would we truly be at risk if we only ended up buying one thousand F-35s instead of over two thousand? Not likely. The only thing that would truly be at risk are the top-line atand jobs associated with the program.
Now, I can understand the desire to make more targeted cuts to the defense budget, instead of across the board cuts, purely for logistical reasons. But, I'm not sure Congress is capable. They might agree with my thesis and the general idea that our military should be designed with current and future threats in mind, not Cold War ghosts. But, it doesn't mean they have the heart to cut funding to programs that create jobs in their districts. It's foolish and disappointing. It's also the reason why we need to either go over the Fiscal Cliff or implement a plan like Bowles-Simpson. The medicine might taste bad to the affected parties, but it'll make us all healthier in the long run.
What does WSO think? Do you agree with my assessment of the ever-growing defense budget as a jobs program? Or is that not the case?
I'd also love to hear the Ron Paul / Libertarian view on this. I used to be on the bandwagon but am not sure I'd go as far as he'd like. Anyone want to argue his position?