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Politics and Economy:
Defense Dollars
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Budget Bang for the Buck

On Dec. 21, 2005, Congress passed a defense appropriations bill, H.R. 2863, which totaled $453 billion. That amount did not include additional funding for Iraq and Afghanistan or defense-related security costs.

Defense spending is unarguably an important element of the U.S. economy. In every state defense or defense-related federal spending accounts for the bulk of federal contract money. In their year-end wrap up coverage of 2003, Reuters led its business news coverage with the headline that could have appeared sixty years earlier too — "Defense Spending Driving U.S. Economy." But defense spending also adds to the federal deficit — a worry for the fiscal conservatives in President Bush's party. In January 1961 President Dwight D. Eisenhower issued a warning about this symbiotic relationship between government defense spending and the economy in his farewell address to the nation. Indeed, Department of Defense and related defense spending accounts for the majority of federal spending in nearly every state. And the U.S. accounts for a large percent of world military spending. What are the actual numbers? Click to find out.

CHART: Defense Dollars: Most Bang for the Buck?      

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every state house, every office of the Federal government. --President Dwight D. Eisenhower's Farewell Address to the Nation

Eisenhower's words of warning undoubtedly hold extra weight, coming from an ex-General who had witnessed World War II defense spending restore a depression economy, and a president who presided over crucial years of the Cold War.

The current U.S. defense budget one of the largest in American history. The defense budget has not reached the high percentage of discretionary spending that it held during the Reagan administration. (Discretionary spending is the portion of the federal budget that Congress can disperse — in 1982 defense spending accounted for 61.1 percent of the total discretionary budget.) Again, 2006 budget numbers do not include the costs of the war in Iraq or peacekeeping and reconstruction efforts.


U.S. Spending: As noted above, discretionary spending is the part of the budget over which Congress has control (the numbers exclude entitlements such as Social Security, Veterans Benefits and other mandated programs). The figures for the 2003 budget come from the most recent House Budget Committee documents as the full spending package has yet to be passed. These numbers are rendered in constant 1996 dollars for easier comparison. [Numbers were put into constant (1996) dollars by using the deflators 'total defense' and 'total nondefense' as presented in Table 10.1, Budget of the United States government, FY2004, Historical Tables.]

U.S. Budget Breakdown: The White House also provides information on spending by agency and by function. The figures of spending by function reflect the discretionary budget. The figures by agency reflect the total federal outlay. Figures by function reflect interest payments on the national debt. You can also review the Department of Defense's presentation of budget materials.

Sources: Forecast International Defense Intelligence Report, August 17, 2004; The; THE VIRGINIAN PILOT, August 31, 2004; THE PHILADELPHIA INQUIRER, August 29, 2004; PORTLAND PRESS HERALD, August 26, 2004; Agence France Press, August 26, 2004; THE NEW YORK TIMES, July 31, 2003; Reuters: Defense Spending Driving U.S. Economy; Budget of the United States Government, 2004; Congressional Budget Office; Office of Management and Budget;
National Priorities Project

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