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Defense Budget Reconciliation?
00:15:30
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| I didn't realize that a little black girl could become a poet. | ||
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unidentified
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Watch America's Book Club with Rita Dove, Sunday at 6 p.m. and 9 p.m. Eastern and Pacific, only on C-SPAN. | |
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| Welcome back to Washington Journal. | ||
| Joining us now to talk about the $1.5 trillion budget for fiscal 2027 is Todd Harrison of the American Enterprise Institute. | ||
| He's a senior fellow there. | ||
| Todd, welcome to the program. | ||
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unidentified
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Hi, thanks for having me. | |
| In talking about this defense budget at $1.5 trillion, what was your initial reaction to that number? | ||
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unidentified
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Honestly, my initial reaction was, you know, I'll believe it when I see it. | |
| Show me the documents that actually add up to this amount of money because it's a bit hard to believe. | ||
| We have never seen an increase of this magnitude, of this percentage in the defense budget, you know, absent, you know, an event like World War II. | ||
| So, you know, I am curious to see, you know, how are they going to be allocating this money? | ||
| Is it a real increase in just one year or is there some other catch to it? | ||
| And when you say that you've never seen a percentage this high, we're at about 50% increase from last year. | ||
| What's a typical increase from year to year? | ||
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unidentified
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Well, you know, in President Trump's previous defense budget request, they only requested a flat budget. | |
| So it was a 0% increase. | ||
| And then, you know, they relied on Congress to appropriate some additional money outside the regular budget through this reconciliation process. | ||
| And so that bumped up the defense budget by about $150 billion. | ||
| But the administration itself was planning a flat defense budget, so 0%. | ||
| I mean, a typical increase that we see in the defense budget would be either at the rate of inflation, 2% or 3% typically, or maybe a couple of percentage points above inflation. | ||
| But that's more typical. | ||
| Well, let me show you what President Trump posted on Truth Social about this. | ||
| This is from January 7th. | ||
| He says this, after long and difficult negotiations with senators, congressmen, secretaries, and other political representatives, I have determined that for the good of our country, especially in these very troubled and dangerous times, our military budget for the year 2027 should not be $1 trillion, but rather $1.5 trillion. | ||
| This will allow us to build the, quote, dream military that we have long been entitled to, and more importantly, that will keep us safe and secure regardless of foe. | ||
| Do we have any understanding, Todd, about what is the definition of a dream military and what that would include? | ||
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unidentified
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We don't, not precisely. | |
| I think we do have some indications, though, from what the president, his advisors, and some members of Congress that he's listening to on defense issues, what they've said publicly about what they want for defense. | ||
| You know, it likely includes a large increase in funding for missiles and munitions to build up our stockpiles, our inventories of key munitions that we might need in case we got into a protracted conflict with a major adversary like Russia or China. | ||
| It probably is going to mean more money for shipbuilding, build up the Navy. | ||
| The President has talked about the Golden Fleet, he calls it, you know, building out lots of new types of ships, but many more ships and increasing the overall size of the Navy. | ||
| It probably would include funding for Golden Dome, the president's signature initiative for developing a homeland missile defense system, which will be quite expensive, you know, to actually realize the vision he has outlined for that. | ||
| So I think there are a lot of different things that could be part of it. | ||
| But again, the devil's in the details and it doesn't happen in one year, right? | ||
| These things take time. | ||
| So you could increase the budget, you know, by 50% in one year. | ||
| But if you don't hold it at that level, if you don't sustain that increase for 5, 10, 15 years, you don't actually build up that military that you're aiming for. | ||
| Now, speaking of sustaining that funding, the president has said that he's going to be using tariff revenue to make up that difference. | ||
| Estimates are that tariff revenue are much less than that 500 billion difference. | ||
| What do you think of using tariffs as a funding source for the U.S. military expansion? | ||
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unidentified
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I mean, you know, in reality, the defense budget is paid out of the general revenues of the Treasury. | |
| So money comes in from a lot of sources, from tariffs, from income taxes, from corporate taxes. | ||
| You know, that money comes in and then the money goes out to defense and non-defense programs. | ||
| And so it doesn't really matter where the money is coming from. | ||
| It's all fungible in the overall federal budget. | ||
| The idea, though, that this increase could be offset by an increase in revenue specifically from tariffs, that just hasn't borne out yet. | ||
| Tariff revenue is not that high, not yet. | ||
| And that tariff revenue, the president has promised it for other things as well. | ||
| He's promised, you know, rebate checks for U.S. taxpayers. | ||
| He's promised payments to farmers to offset money they've lost because of business. | ||
| They can't export their crops. | ||
| Prices have fallen. | ||
| So I think that there's, I don't know, a lot of confusion about how much tariff revenue and how much could it actually offset an increase in the defense budget. | ||
| I'm more interested in how does he get the money appropriated for this defense budget? | ||
| How does he get it through Congress? | ||
| And is it in a way that leads to a sustainable, stable level of funding? | ||
| Or is this kind of a one-time sugar high, an influx in defense funding for one year that then gets pulled away the following year? | ||
| Well, let's talk about that because the Committee for a Responsible Fiscal Budget says that their estimate is that this would add to the budget deficit $6 trillion in debt over 10 years. | ||
| So how does one get that through Congress given the budget hawks who are saying our deficit, our national debt is already over $36 trillion at this point? | ||
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unidentified
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Yeah, well, you know, that projection, of course, assumes that the funding increase of about half a trillion a year is sustained over 10 years. | |
| And then you add in interest costs because ultimately this does result in more borrowing. | ||
| And so, yeah, I would pump the brakes there and say, I'm not so sure that's what the president's actually proposing. | ||
| He said the budget for 27 will go up to 1.5 trillion. | ||
| I actually suspect that what they're envisioning doing is kind of like they did last year and using this reconciliation budget process in Congress, which is just a one-year increase in funding. | ||
| And they may play some budget games, use some gimmicks to count some of the reconciliation money from last year that they counted towards this year's budget. | ||
| They may count that money again towards 27. | ||
| That's not new money. | ||
| That's just an accounting shell game. | ||
| But that could add $100 billion to what they claim for 27 and then maybe add another $400 billion in assumed reconciliation funding they think Congress will pass this coming year. | ||
| That's just a one-time increase. | ||
| So when they're, you know, when the Congressional Budget Office is doing the scoring, which is kind of the tab keeping of, okay, how much are you adding to the deficit? | ||
| Since that's a reconciliation and it's one-time, they're only going to count that as a $400 billion increase total over 10 years because it's not intended to be sustained. | ||
| And so in that case, then, yeah, they just need to find something they could probably claim, you know, a relatively small amount of tariff revenue per year over 10 years and use that to pay for a one-year, one-time increase in defense funding, and then claim that it's budget neutral. | ||
| But, you know, all of this is really just shell games of moving money around on paper. | ||
| And if you have a sudden increase in the defense budget that's not followed by a sustained level of funding, you could end up making some pretty foolish investments. | ||
| You could start programs that you then have to cancel. | ||
| You could, you know, increase the size of your force and then have to immediately decrease it. | ||
| So, you know, which would be very inefficient with that funding, would it not? | ||
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unidentified
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It's very inefficient if that's what ends up happening. | |
| So, you know, again, the devil's in the details. | ||
| I'm curious to see what plan they actually come out with. | ||
| And, you know, specifically, what is their five-year and 10-year plan for this funding? | ||
| Well, I'll invite our viewers to join our conversation with Todd Harrison of AEI. | ||
| We're talking about the defense budget. | ||
| If you'd like to join the conversation, give us a call right now. | ||
| Democrats are on 2027-8000. | ||
| Republicans 202-748-8001. | ||
| Independents 202-748-8002. | ||
| We have a line set aside for active and former military members. | ||
| That's 202-748-8003. | ||
| That's the same number you can use to text us. | ||
| I want to ask you about the President Trump's recent executive order targeting defense contractors and executive compensation, also stock buybacks. | ||
| Can you explain what that executive order does and what you think could be the impact? | ||
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unidentified
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Well, the intent of the order appears to be to get defense companies to use more of their own internal profits to reinvest in their companies, to expand production lines, and to invest in developing new and innovative technologies that would benefit the military. | |
| And, you know, typically that has been something that defense companies, like any other business, you know, in their free market economy, they decide for themselves and their shareholders and their board of directors decide how much of profits do they reinvest in the company to ensure future growth versus how much do they pay out in dividends or in stock buybacks and things like that. | ||
| So, what this executive order does is it's basically going in and putting restrictions on defense companies if they're not performing, if they meet certain criteria, which are not fully defined yet. | ||
| More will come on that. | ||
| But if they're poor performing, if they're deemed to be poor performing on their contracts, then the government is saying we're going to come in and we are going to limit what you can do in terms of executive compensation, how much you can pay your CEO and other senior executives. | ||
| And we're going to limit what you can do in terms of managing your own finances and your own business to force you to spend more of the money on things that are of interest to DOD. | ||
| I think this is born from a deep and long-simmering frustration with some defense companies, not all, that they've not been investing enough in new technologies and expanded capacity that DOD might need in a wartime situation. | ||
| But, you know, this is a very, you know, hard-nosed way of forcing that to happen. | ||
| It's not really creating incentives. | ||
| It is forcing the companies and limiting what they can do in the free market. | ||
| So, and Todd, what do you think that that's is it would it help with improving production and reducing cost overruns? | ||
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unidentified
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Yeah, I think it has a strong chance that it may backfire. | |
| That you may see other defense companies or commercially oriented companies that are thinking about working with the military and thinking about getting into defense. | ||
| I think you'll see them refuse to sign contracts that have these terms in them and may you know be may turn away from the defense industry because they don't want these restrictions put on their company. | ||
| I think for a lot of the big prime companies, you know, like Lockheed, like Raytheon, Northrop Grumman, those companies, they don't have much of a choice because virtually all of their business comes from the U.S. government. | ||
| And so, I think it's going to be a real struggle for these companies to manage in this environment where the government is kind of micromanaging how they run their own business. | ||
| I fully understand the sentiment and the desire to get defense companies performing better and investing more in the success of their customer, the U.S. military. | ||
| I don't know that this is the right way to do it, though. | ||
| Let's talk to callers. | ||
| We'll start with Greg in Florida, Democrat. | ||
| Good morning, Greg. | ||
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unidentified
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Good morning. | |
| I wanted to call in and Mimi and Todd. | ||
| I thank you for taking my call. | ||
| The nine countries that spend the most money, other than us, I'm told their budgets, if you add all of them together, is about the same as what the United States currently spends. | ||
| So I'm trying to understand why President Trump thinks he needs another $400 to $500 billion of artillery. | ||
| And is there a way that they can cut plans? | ||
| For instance, they just recently signed for the S-47 planes. | ||
| Why they can't cut other things that they're currently doing that are no longer efficient. | ||
| Yeah, I think you raised some great points there. | ||
| I would say in comparing the U.S. defense budget to other countries' defense budgets, I would offer two cautions. | ||
| One, it is very difficult to compare them because other countries are not nearly as transparent as the United States in reporting their true defense costs, and in particular, China. | ||
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China's Defense Spending
00:02:55
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unidentified
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And the estimates on China actually vary considerably. | |
| I've seen some analysis from my colleague at AAI, McKenzie Eaglin, where it suggests that China's defense spending actually is coming pretty close to U.S. defense spending when you actually match it up apples to apples. | ||
| And so a lot of uncertainty there. | ||
| So it's not necessarily true that the next nine countries spend less than the U.S. military even all combined. | ||
| That was true years ago, but that is becoming less true and much more uncertain of a proposition. | ||
| The other thing is that the U.S. has traditionally, since end of World II, World War II, been the provider of global security and the rules-based international order that benefits us as a nation economically, but also in terms of national security. | ||
| And that requires a strategy where the U.S. is forward deployed, virtually all regions of the world that we are out there active operating in the world so that conflict does not come to us, right? | ||
| We inherently play an away game, whereas a lot of the other countries you're comparing us to, they only want to play a home game. | ||
| They only really operate militarily in their region, in their immediate vicinity. | ||
| They're not trying to preserve the international order. | ||
| They're not trying to protect the flow of commerce around the world. | ||
| So it costs a lot less, right? | ||
| Their strategy is much more limited than ours. | ||
| And so I think it's difficult to make a comparison when our strategy and our objectives are very different. | ||
| And are there allies in the Pacific that we could depend on, Todd, if it came to a conflict with China that Japan, for instance, South Korea, Australia? | ||
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unidentified
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Absolutely. | |
| Those are three of our main allies in the region. | ||
| They've all been increasing their defense spending. | ||
| They've also been doing a lot of things to invest in new and innovative capabilities to fight the future warfight. | ||
| They are absolutely the bedrock of our allies in that region. | ||
| But they also need us. | ||
| We are the key enabler that allows their forces to be able to fight. | ||
| I mean, for example, if South Korea gets into a major conflict with North Korea, South Korea has the ground forces. | ||
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Nuclear Deterrence's Role
00:02:59
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unidentified
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They know the terrain. | |
| They have the weapons that they need to operate. | ||
| But there are key enablers they need from us, like intelligence and surveillance to know where the adversary forces are, where to strike. | ||
| They also need from us nuclear deterrence. | ||
| They do not have nuclear weapons of their own. | ||
| North Korea does. | ||
| And so they rely on us to provide that threat of retaliation should North Korea do the unthinkable. | ||
| So, you know, I think it is, you know, we help them, but they also help us. | ||
| And they are the frontline defenders in the region. | ||
| And so it's important to remember that, you know, that's the nature of an alliance is that it's mutually beneficial. | ||
| And I think that's certainly true in the Indo-Pacific region. | ||
| Here's Peter, Independent, Upper Derby, Pennsylvania. | ||
| You're on the air, Peter. | ||
| Yes, I agree with the Speaker. | ||
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unidentified
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I think this Golden Dome is a waste of money. | |
| I don't think it will ever come to fruition. | ||
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unidentified
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I used to work with DOD for 20 years, and it's going to be a whole bunch of programs that he's going to start, and then it's never going to come to fruition because the Democrats most likely will win in the midterms, and they're going to block some of these programs and all these wishful lists of things. | |
| I think the president is just acting like a rich, spoiled kid, playing with our money. | ||
| And, you know, I don't see these things coming to fruition. | ||
| So I do agree with the speaker. | ||
| Todd? | ||
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unidentified
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Yeah, well, you know, I don't actually think Golden Dome is a waste of money yet. | |
| I think it's too soon. | ||
| It's too soon to tell. | ||
| It's been almost a year now since the executive order came out, and we haven't seen an architecture from the administration. | ||
| So we don't know what it is. | ||
| You know, I think that there are many possibilities where they could invest in, you know, greater missile defense systems, especially some of the things that are already in development. | ||
| that would be beneficial regardless of whether you call it golden dome and regardless of whether you use it to defend the homeland. | ||
| You could actually use many of these systems to defend our U.S. forces that are deployed overseas and our allies and partners around the world. | ||
| So I think there could be a lot of utility depending on what they use the golden dome money to invest in. | ||
| So I would say the jury is still out on that. | ||
| But to your broader point, I think that there are a lot of things the administration has been proposing, programs that have been started that are really unfunded ambition right now, that they have not laid out a five, 10 year funding plan for how they're going to pay for things like the X-47 sixth generation fighter, this golden fleet that the president has talked about in some vague terms. | ||
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Sustained Funding Frustration
00:00:58
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unidentified
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Like where's the funding that they're going to pay for that? | |
| Because it's not something you buy just at once. | ||
| It's something you actually have to pay for year after year over a long period of time before you realize that capability. | ||
| And so that is my question is where is the sustained funding to see these things through fruition? | ||
| That's why I'm worried if this is just a one-time increase without a follow-on, that we may go down the path of starting lots of programs, ramping up production of things, and then not actually follow through and then not get anything out of it, which just creates more inefficiency in the system. | ||
| And Todd, can you talk a little bit more about this? | ||
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unidentified
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We're going to leave this. | |
| Take you live to the House for votes. | ||
| Votes will be taken in the following order. | ||
| H.R. 2683, HR 6500, and HR 6504. | ||