On March 29, 2012, Congressman Adam Smith made the following speech at RAND Corporation in Washington, D.C.:

Thank you very much Mark, thank you RAND Corporation for hosting me. 

The necessity of defense spending efficiencies will become clear as I talk. The main point that I want to make, basically, is there are a number of folks who have looked at our defense budget challenges in isolation. In the Armed Services Committee, in fact, there are many who argue that the overall budget deficit picture—in taxes and entitlements and how that all comes together—really doesn’t have anything to do with us. If you are on the Armed Services Committee you are there to focus on the Department of Defense, the Defense budget, and those very narrow national security needs. And we tend to get into a very empty fight about cutting this program or cutting that program, and the impact that all of that would have on our Defense spending.

It is my opinion that on the Armed Services Committee we certainly have obligations that go beyond that as Members of Congress first of all—our obligations are to the broader country—but even as a Member of the Armed Services Committee, we are responsible for National Security interests. And the debt and the deficit are National Security interests. As much as I would like to be able to ignore it, for reasons that will become obvious as I talk about it, we can’t because is in and of itself a National Security issue for a variety of different reasons. And it is a National Security issue that we are studiously ignoring, as a country, as a Congress, just in general.

We are not confronting the challenge that is in front of us. We still have the old way of approaching budget, and deficit, and spending issues, which is to say: divide and conquer. Whatever your particular interest is, you make the compelling argument for why that interest cannot afford to be cut, or in most cases desperately needs to be increased, or if it’s a tax, the reverse of that, and then you stay focused on that very, very narrow lane. And in every instance that I’ve seen, people who are arguing for spending in a given area, or are arguing against a tax increase in a given area, have a very compelling argument. Because I’ll let you in on a little secret: every single spending program is in and of itself a positive. Every single tax cut is in and of itself a positive. If you cut spending, or raise taxes you will, in the short term and this is in a very isolated way, cause harm. Because, if the government spends more money that helps, it puts money into the economy. If the government takes less money away from a business or an individual, that helps because that business or individual is able to put more money into the economy. The problem of course comes from the fact that you have to raise the revenue in order to spend it. And if you put the two together it becomes a slightly more complex picture. But we are not doing that. We are still fighting, program by program, tax cut by tax cut, making the case for why we cannot touch any of these things, and I believe that jeopardizes our national security.

So the first thing I want to do is give a sort of stark picture of where the debt and the deficit are at. A lot of times people say that our budget is a very, very complicated issue, the debt and the deficit. I guess past a certain level is, but up front it is not complicated at all. It is the world’s most simple math problem. Well, maybe not that simple, but it is pretty straight forward anyway. This is 2011, that’s what we spent, that’s what we took in, and that is the deficit. That is a very, very large deficit by any measure. $1.3 Trillion is an enormous amount of money in any entity regardless of its size. It’s running in deficit. And I confess haven’t done the percentage here recently, but that is roughly 38% deficit. That is an enormous number, and it is a big, big, huge problem and challenge. Based on our current projections—there are current policy debates about will the tax cuts be extended, and there are a whole bunch of things that can change—but by and large, if we keep going on the pattern that we are going on without any significant changes, this doesn’t change much, based on our current projections of what we are going to spend. So it ain’t getting any better.

This is where we spend our money, that $3.6 trillion that I mentioned before. So in order to get our budget balanced in a given year, you would have to cut 38% of that. That’s overwhelming. I mean, think about the fights that we have had in any one of these given areas over very small programs. I mean a 38% cut… For a 1% you have knock-down drag-out battles, and normally we wind up not doing it.

So, that’s where the money is. Now the best way to think about it is roughly 56 % mandatory spending, and then roughly 37% discretionary, and the rest is interest (I guess technically I should count interest as mandatory spending. It is required). So, that’s where it is at. You can see Defense is a little bit more than half of the discretionary budget. Just to emphasize the challenge that I mentioned earlier—about how we are not really confronting the realities of these numbers—that’s the purpose of this slide. And this is a little bit more in keeping with your normal Department of Defense slides, in that you have to look at it for a little while before you can figure out what it is. I’ve seen slides they’ve put up before where I’ve honestly said to them, “I think you are just doing this to mess with me for a number of hours. The slide actually means nothing, you are just trying to force me to try to figure it out.”

But this isn’t that complicated. This is a poll that was taken in February of 2011, asking people, broadly, within the Defense budget, what they would like to see cut, increased, or stay about the same. You pretty much have all the categories of spending. They might have missed one or two minor subcategories there, but in that list that is pretty much everywhere that we spend money. Then at the bottom you have some questions about taxes that want to be raised. (I’m going to walk away from the microphone for just a second here). This column over here adds up those who want to give a program an increase or to stay about the same. Alright? Which is to say the United States of America wants to cut nothing. Not a single solitary thing. Alright? And it’s worse than that, because you get down to foreign aid, that’s the only one that’s close. Look at the rest of these numbers. It’s not even a matter of like, “well, 52% are reparable.” I mean, you are well over two thirds, in just about every category, that doesn’t want to cut anything. In fact, you know, try to get any percentage of people actually want to increase the amount we spend on that. And then we get down to the tax portion and you see that they don’t really want to raise taxes either. That’s the problem. Alright? You combine this… with this… and you are not living in a sane world. It simply doesn’t add up.

Now, this is a difficult and thorny problem to confront, because any policy maker is by-and-large elected by those people. So you have to make a proposal dealing with this. And the thing is, I mean you’ve got to make proposals to get this dealt with that are dramatic. I mean forget a minor cut, we are talking huge to get to a 38% reduction. And we’re not there.

Basically my one goal, out of all of this, is to try to penetrate the denial about the situation we’re in where the deficit is concerned. We are still having those arguments about “you can’t cut this program, you can’t cut that program” in isolation, focused on that. If we don’t start looking at the big picture, we are going to be in a world of hurt.

Now, what does all of this have to do with the Defense budget? Well, it actually impacts that Defense budget, and National Security I believe, in three main ways. The first one is this quote from Admiral Mullen—he was testifying for the Armed Services Committee—in which he said basically that the greatest threat to our National Security right now is our debt and our deficit. So it, in and of itself, is a National Security issue. So if those of us serving on the Armed Serviced Committee are going to live up to the Article 1, Section 8 Mandate about standing up for National Security and protecting our country, then this is something that we have to care about. Now there is sort of a broad point here that if your economy is weak you are going to be less strong a position to defend yourself and meet your interests. But there is an even more specific point, and that is: As we run out of money, and have less money to spend, we have less money to spend on key National Security acts. Let me just give you one example with the concern now that we have requirements for 313 ships. We only have 289. Well eventually, if this deficit continues, we are not going to be able to afford 289. You can go service by service and need by need and figure out the trouble we’re going to be in.

(And if we can go back to this chart) One of the most helpful things about this chart, and believe it or not the only helpful thing about this chart, is that 6% number: the interest on the debt. For the size of our debt—over $15 trillion dollars—for it to only be 6% of the budget is a miracle. But it is happening because of the global economy, and the fact that there is so much uncertainty out there, that people still think of the U.S. government as being one of the safest places to put your money. So we are at unbelievably low interest rates. Well if these numbers continue, and if the interest rates go up a point or two—much less five or six—imagine if that 6% wedge was all of a sudden 20% of the budget, which is not that hard to imagine. Then you’ve got a lot less money for defense, or for anything else.

 So, our inability to buy the ships, the planes, to expand our force… I mean what we’ve always been good at over the last 100 years…  (It has been said that we are not good at anticipating what attacks are going to come. I’ve always thought that was a way over-stated point, because of course, it’s a surprise, you didn’t expect it. If you expected it, it wouldn’t be a surprise. It is very difficult to predict exactly what your national security threats are.) But what we do very well is we respond. We figure out what is the issue, what do we have to build, how much do we have to grow our force, and we do it. We did it in World War II, we did it most recently in Iraq as the IED problem emerged. We built a bunch of M-Raps in a big hurry. We responded. And you can’t respond if you don’t have any money. That’s overstated… you can’t respond if you don’t have as much money as you would like. So that’s the number one big national security impact of our debt and deficit on National Security and our Armed Forces.

But the other problem is, if you think about how we would confront the deficit, there are sort of three broad areas that you are going to want to look at. One is revenue. Certainly that is part of the equation. You can bring in more money and that would help. Putting aside any debate about tax reform, that’s exactly what you do, you could bring in more revenue. That has to be part of the equation, in my opinion.

And then basically the budget up here is divided into mandatory and discretionary spending. Now the biggest difference between all these things is, in mandatory spending and revenue you usually have to pass a law in order to either increase the revenue or decrease mandatory spending. Which means that the House, the Senate, and the President have to agree for this to happen. That is an extraordinarily difficult thing to do in the best of times, almost impossible in the current environment. The discretionary budget, the 37% in the bottom corner of which Defense is over half, all you have to do to cut that is do nothing, because every year that money has to be appropriated. Every year the House, the Senate, and the President have to agree to actually spend it. What that means is that the discretionary portion of the budget is particularly vulnerable to our deficit math problem. And this is exactly what happened with the Budget Control Act last year.

I’ve heard people say on the Budget Control Act, that sequestration was put in place in order to force us to do something. The think was that if we made sequestration as painful as possible, that it would require us to act. We wouldn’t ever let that happen. So people voted thinking “it won’t happen, that is the whole reason it was set up.” I don’t actually believe that. There may have been a couple of people delusional enough to think that we would actually address the issue. But what happened was we were days away from the debt ceiling being breached, and all the bad things that would come from that. How do we get out of this? Lord knows we don’t want to confront mandatory spending or raise taxes, so the only thing to do is to dump it all on the backs of discretionary spending. So up front we made substantial cuts in discretionary spending, and then as a backup we said we’d make even more cuts if we didn’t deal with the issue. That was simply to get us through that crisis. It was no more likely that in two or three months we were suddenly going to stand up and deal with the challenges of mandatory spending and revenue than it was when we were staring down the barrel of default. We couldn’t do it then, what was the likelihood that we were going to do it in the three months before Christmas? But it got us passed the crisis. It kicked the can down the road. And that’s going to keep happening.

If we don’t confront mandatory spending, and revenue, then the discretionary portion of the budget is going to get hammered. And Defense is over half of the discretionary budget. Which again means that if you care about Defense spending and national security, you have to care about fixing the larger debt and deficit problem, and confronting mandatory spending, and confronting the revenue challenges. Now the final thing that all of this means for Defense is: Defense does have to be part of the solution. It is 19-20% if the budget, roughly. So if you are 19% of a budget that is 38% in the black, the odds are you are going to have to do something. It’s going to have to impact you in some degree. So if we burry our heads in the sand on the National Security side and say, like everybody else, “Don’t touch us!” simply isn’t going to work.

Now I happen to believe that there is a reasonable way to do that. And I think that the President and the Defense Department did that. They had a significant strategic review that looked at this debt and deficit issue, that looked at their needs, and came up with a 10 year plan that was realistic within the budget. We’ve also been having an endless, and to my mind ridiculous, debate about whether or not the strategy was driven by our national security needs or was it driven by the budget. The clear implication is that any strategy that is driven by a budget is somehow impure, heretical. “How dare you put our national security on a budget?” That strikes me as insane, because every single decision that we all make is driven in part by the budget. If we had an infinite amount of money our lives would all be vastly different in a hundred different ways, but we don’t have an infinite amount of money. You have to consider the budget when you are putting together strategy. Having considered that, they put together a pretty good strategy that plans to reduce the overall Defense budget by $487 billion over the course of the next 10 years.

Now, keep in mind that was a reduction from what we were projected to spend. It is not an actual cut. It was based on the 2012 numbers, the 2012 estimates of what we were going to spend. So, in real terms, it’s pretty much flat-lined. It’s a three-tenths of 1% reduction after inflation over the course of the next ten years, and will enable us to keep spending well over $500 billion dollars in the Defense budget for a long time to come. Not only should that be enough, it has to be enough. Unless we want to come along and make dramatic cuts to mandatory spending, and dramatic increases to taxes, it will have to work.

Now I do want to offer one note of caution in all this. There are a number of people who sort of take this and go “Yeah, we ought to double, we got to cut more out of Defense.” And then you see the analogies of the difference peace dividends  that we’ve had—in the Cold War, post World War II, post Korea, post Vietnam—and the numbers are much greater in all of those periods in terms of what was cut from projected spending. One statistic I heard is that if you looked at what we were projecting to spend on Defense in 1986, and then where we actually wound up by 1994, it was a $1.6 trillion reduction. Now keep in mind, again, that was based on projections, not on actual cuts.

The problem with this scenario is we still have many of the same National Security threats that we had when we did the build-up ten years ago. This is not like World War II or the Cold War. The war is not in fact over. Now there is one advantage: we’ve drawn down completely out of Iraq. We are on pace to draw down out of Afghanistan. We’ve changed that strategy so we have less of a forward commitment. And there is savings to be found in not having somewhere in the neighborhood of 200,000 troops deployed in the war zone, certainly. But look at some of the other national security threats that we have. Our need to contain and deter North Korea is no less now than it was ten years ago. Arguably it is greater. Our need to deter and contain Iran is unquestionably greater than it was ten years ago. Our need to have a robust presence in Asia, as a reasonable counterweight to Chinese rise and to reassure our allies there that they do still have a friend and that they don’t simply have to bow to whatever China wants, is, again, no less than it was ten years ago. And Al Qaeda has not surrendered. They declared war against us in 1996, and that is still their opinion. They are still fighting that war. Now, we’ve been very successful in containing them. But it is still a battle and still a fight in Afghanistan and Pakistan, and Yemen and Somalia, spreading to other parts of Africa. So those needs are still there. That is why I don’t have the enthusiasm for saying we could double those Defense cuts and not have to worry about it.

We have needs and demands that are going to continue. What we have to do—and this will be the final point that I will make before I take your questions—there are also ways that we can get more out of the money we have spent. And I think there are a whole lot of people in this room that know this stuff a lot better than I do, so I’ll just say it quickly. In the last ten years we have wasted an enormous amount of money in the Department of Defense. Part of that we were reacting quickly to the post-9/11 world. It was an emergency. You don’t make as good rational and economic decisions in those situations that you otherwise would. But it is not all attributable to that.

Our acquisition and procurement process has had projects that have gone way way over budget, many of which have had to be cancelled because they didn’t work out. There have been a number of studies that have looked at this and said “Here is what you need to do different.” And basically what you need to do different is be more realistic in what you are going to get out of a given system or program. Future combat systems, the F-35, the expeditionary fighting vehicle, the (?) tour of combat ship, the list goes on of programs where we imagine that there is going to be some perfect system out there. And I have to do this joke because I enjoy it, the Austin Powers thing. It’s like “all I want is sharks with freakin’ laser beams attached. Ok?” There was a little too much of that going on in the Pentagon. The notion that if you want it, if you can visualize it, if you can put it on a computer screen, then why the hell can’t you build it? We have to change that attitude. We have to bring that back under control.

We also have to do something about the tyranny of the program of record. We put out this endless list of requirements, create a program of record, and then that is all we can do. Meanwhile, the rest of our fast-paced, innovative, rapidly changing world is moving all over the place. There are all kinds of good technologies that are developing. But you know what? Eight years ago we said we were going to buy this, so we are going to keep pouring money down this rat-hole instead of buying the commercial, off-the-shelf technology that has developed on its own. And the beauty of that is, we don’t have to pay for it. We don’t have to pay for the R&D and the development. That’s how rapidly technology is coming. We have to take advantage of this.

Now everything I just said, you could go over to the Pentagon and you would, without any trouble, run into ten people who would go “Yes, that’s absolutely right. That is exactly what we have to do.” It’s not happening. Ok? I can’t say for sure why it’s not happening. I do not have a PhD in Pentagon bureaucracy. I don’t know of too many people who do, I can’t say for sure. But all of this has to have a sense of urgency. We simply cannot afford those same mistakes that we’ve made before. We’ve learned, we know how to make these changes, but we are very entrenched in the old ways of acquiring and procuring things. And we could pass another dozen acquisition reform bills in Congress… It is about implementation. It is about the program managers and the leadership in the Pentagon making the individual decisions to make these changes. And the second thing it is about is Congress backing them up. Once they’ve made that decision, you can’t then have some Member of Congress say (and I’ve heard this a number of times), “Well, when I first saw this it was a local issue. But now I’m convinced that it is the single most important thing for our national security, so we have to protect this.” We in Congress have to get passed that as well.

So I believe that we can save that money. I believe that we can make some strategic decisions that get more out of what we spend. Certainly we can draw down the size of our ground forces given that we are coming out of Iraq and Afghanistan, and there are other places throughout the Pentagon budget in which savings can be found. Again, I think the $487 billion dollar figure that has been settled upon is a pretty good place to start. It is quite possible we could find more. But the overwhelming message that I want to try to deliver—and itis a message that people are going to be very resistant to—is that this is a crisis. And a crisis changes the equation.

The same old arguments that you had that might have applied when we were running a surplus simply do not apply now. It is not enough to take any one tiny little piece of this, (or sometimes I have a revenue chart. I skipped it today) or any one tiny piece of revenue chart, and say “No, but you don’t understand! The Estate tax would be devastating, and here is why…” or “No, you don’t understand! You can’t possibly make a reduction, because this will have a disproportionate…” Yeah! When you are in this situation, you are going to have to make some decisions that you would rather not make. And what we are doing right now is sticking our fingers in our ear and going “Nanananana! I don’t wanna see it, I don’t wanna hear it!” The problem is, whether you want to see it, whether you want to hear it, or not, it’s happening. And as it happens, bad things come with it. Not just the overall problem but, as I said, if you want to know what bad things I’m talking about, just look at the Budget Control Act. That’s the kind of thing that happens when you don’t confront the over-all problem, the over-all challenge.

I lied actually; I want to fire off one more quick point: The uncertainty of all of this is almost as bad as the reality. Because as we sit here today, all of the Bush tax-cuts are set to expire at the end of this year. Sequestration is set to kick in. That is trillions of dollars in difference as to whether or not that happens exactly as current policy would have it happen, or current law would have it happen, or not. So business out there are not hiring people, they are laying people off, because they don’t know. Now maybe Congress does what it typically does, and at the absolute eleventh hour come up with something to make sure the tax cuts don’t come back and sequestration doesn’t happen. But if you are a business, you can’t count on that. You’ve got to start planning. The longer we wait to confront this problem, the worse it is, and the more that uncertainty and the reality of the size of the deficit eat away at us. And I will agree with Admiral Mullen, there is no greater National Security issue for this country. Whether you serve on the Armed Services Committee in Congress, or are simply a resident of the United States of America: No greater issue than trying to realistically and reasonably confront the deficit that we have; the fact that we are not taking in anywhere near as much money as we are planning on spending.

Thank you very much, I appreciate the chance, and I will take your questions.

Q & A

Q: Scott Hayford (sp?), I’m with the National Intelligence Office. You just said that the longer we wait—and we are in an election year—so what is your prediction as far as getting everyone together in the next eight months that we have next?

A: I try not to make predictions in my job, because that’s not my job. In fact one of the greatest quotes I ever heard was Rahm Emanuel being asked about one of his prediction about I think it was the 2006 election or whatever, and he said “I don’t predict, I effect.” I could make a prediction, but there is no point in me doing it. All I can say is: we need to do it. And if it looks unlikely now, then we have to work to try to make it more likely. We have to make the case to people that we need to get this done. I will say this: it’s a steep hill to climb. It’s not the inclination of many folks to step up to this right at this moment. And the budget debate that we are having right now that is rather, shall we say, more heat than light, isn’t helping. But you know, we’ve got to have the conversation. We have got to start pushing people towards doing it. I think it is going to be very very difficult.

The thing is that election year or no election year, these are difficult decisions so we’ve got to start making the case. But part of it is, is to build support amongst the Public. Yes, Congress has leadership obligations there, but I said a long time ago you cannot lead if nobody has any interest whatsoever in following. We have to start building support within the country for the notion that some of these changes that they still view as unacceptable are going to have to become acceptable. We can pick which set of them become acceptable, but we cannot act like they all are unacceptable anymore. So we’ve got to start building support amongst the public. This is my Town Hall meetings and conversations that I have with people to try to start... Let’s have that conversation. I said that the budget is a simple, it’s a simple math problem, which it is, but where it does get complicated is when you decide “Ok, I want to do something about it.” Well, what specifically do you do? How do you save money in the mandatory portion? How do you save money in discretionary? What taxes do you raise? Those issues become difficult, but they are impossible now because we are acting like we don’t have to have the conversation. So start the conversation. Change the dynamic so people understand that keeping things the way they are is not an acceptable option. But I can’t make a prediction.

Q: My name is Forest Frank, I’m probably a PhD in the Pentagon Bureaucracy, having been at IDA for about 30 years, having come off the Hill as a staffer. But I’m not a lawyer, so when I look at sequestration I realize all this stuff translates into termination for convenience. Most termination for convenience begins months ahead of the event. So, two quick questions: When does the effect of potential sequestration really set in? Is it July is it August?

A: It’s now.

Q: And the next question is, in 1968 President Johnson, faced with an identical conceptual problem, engineered a temporary tax increase. What’s your thinking about that approach as a partial, interim response to ease this transition as we get from where we are today to an altered state?

A: Forget Linden Johnson for the moment. Ronald Reagan, on a whole series of issues, I think he raised taxes eleven times to try to deal with these issues. That’s why I started out with that first point about making the case that a given tax increase is bad or a given spending increase is bad. See that’s where people sort of get lost. Because, every single tax increase, every single spending… they are bad. I can’t argue with you. People will be hurt if we are not spending money in a given area, people will be hurt if we force them to pay more taxes. We simply have to move past that simple-minded approach to the argument. And it is a very effective argument. If you are trying to protect a given area, you can do a great job if you pretend like the larger issues have nothing to do with you. So yes, I would have been very supportive of that. It was the first time in history we went to war without raising taxes. In fact we went to war and cut them. It’s unprecedented. And part of the problem is we have become so unbelievably effective as advocates for given issues. Unbelievable. Between the internet and all this different stuff, people have become sophisticated beyond belief at defending what is theirs.

The other part of it, which I will sort of boot-strap onto your question here, is that the lack of confidence that people have in Congress feeds into this. Because the people who are defending a given program, they’ll make their argument and have their issue, but then it’s like, “Ok, most people don’t care about this particular issue. How do I get them in there? Well, I make some argument about how the only reason they want to cut this is because…” well, let’s fill in the blank with what people think about Congress: they’re protecting some core interest group, they are doing it because people give money to them. And then people think “Oh yeah, yeah absolutely, Congress always does that. So yeah I agree with this guy, we shouldn’t cut that program. It’s just Congress being terrible.” It’s like in the Health Care debate, not to raise this issue. But people keep telling me “How come your rushed that?” And I’m like, “Are you kidding me?” I’ve been a legislator for 22 years. Unprecedented, the amount of time we took on that. The Senate bill, which we passed, was there for everyone to read for three months! We normally don’t have 3 days. But everyone believes that.

Then I get both sides: on the Left it’s like “Well you wasted all that time trying to be bi-partisan,” and then folks on the Right side say “Well you never even tried talking to the Republicans.” And about 80% of the public believes both. That’s the ultimate irony. So we’ve got to get passed that too, and try to work to get some confidence back in our elected body, because I’ll tell you it’s a lot easier to think of Congress as fundamentally dysfunctional, than it is to try to make that work. So I don’t really blame people for wanting to try to blow past that and focus on the dysfunctionality of Congress.

Q: Kate Brand, Defense News. I was wondering if you can address two things you hear on the other side. One is that Defense has already paid its fair share, and they point to the Gates efficiencies that were introduced I think starting in 2009 or 2010. And then that Defense is not responsible for the Debt, so it shouldn’t be part of the solution. What do you say to both of those things that come up all the time?

A: I’ve actually heard this argument. I won’t say who made this argument because I have a lot of respect for the individual. But the argument that they made was: Defense is 20% of the budget. Defense, at the time they said, was $550 billion. If you cut Defense 10%, that would be $55 billion. But your deficit is $1.3 (trillion). $55 billion out of $1.3 is nothing, so therefore Defense is not part of the problem. And that’s beautiful, because you could do that for every single portion of the budget. Every single portion of the budget is only 5% of the budget or only 10% of the budget or only 20% of the budget. It reminds me of the Sesame Street episode where they had people walking down the street. Someone finished their lunch, dropped a banana peel on the sidewalk. Someone else walked down and dropped a soda can. Pretty soon they walk by and the street is this huge mess, and they are like “Well who did this?!” and everyone’s like, “No I didn’t do it. I didn’t do it. Nobody did it. All I did was I dropped a banana peel.” Yeah, but it all adds up. Ok? People who say—and I hear that argument all the time, and I understand why people make this argument, because who the hell wants to be part of this party? “My portion’s got nothing to do with it!” The funks (?) in Social Security, they’ve got an outstanding argument for why Social Security has nothing to do with the deficit. My answer—and that was long winded. I’m trying to calm down—My answer is: That’s insane. If you are 20% of a budget that is 38% out of whack, you are part of the problem just like every other chunk of the budget is.

Now, we can get into a debate about “how much of it should you do? How should we balance all this out?” and that’s fine. But to say that you are not part of the problem is simply, once again, one of those very well articulated arguments for trying to side-step responsibility for the over-all problem that we have. So don’t buy that one at all.

As far as “Defense already gave”… We have doubled the Defense budget in the last 10 years. The efficiencies that we are talking about was a $125 billion reduction from what was projected two years ago. And two years ago the projections were getting us up close to about $600 billion. It’s just not a credible argument. Now, it is a potentially credible argument to say “Here are our National Security needs. We can’t meet them for less than this amount of money.” And lay out that argument. Actually, I am open to that argument. I’ve looked at it myself, I don’t think it’s true. I think that the $487 billion can be met. But if so, then put your proposal on the table for raising taxes. Alright? That ain’t happening. We’re talking about cutting taxes. If your position is you should not cut Defense, and you should not raise revenue, and fiscal irresponsibility is irresponsible and cannot stand, then you have to be prepared to cut mandatory programs by a third. Which makes the Ryan budget look like a love-tap. I don’t see that.

So what’s happening in those arguments that you have articulated is (what I’ve said way too many times already in this speech) is it’s the divide-and-conquer strategy. “I don’t want to look at all this other stuff. MY portion of the budget is important for these reasons.” I find those arguments less than compelling, let’s put it that way.

Thank you very much for the opportunity to come speak with you. I want to just close by saythat , as I said, I do believe that there can be too much enthusiasm for cutting the Defense budget. There have been a number of budget proposals that have doubled that number. We have unquestioned National Security needs. As I said: North Korea, Iran, we need to have a presence in Asia, we need to deal with Al Qaeda. Part of my argument, and what I do hope people will take away from this, is not just that Defense has to be at the table, but that we have to confront these larger issues in order to protect Defense. That is what has sort of blown past a lot of people. Yes, Defense has to be on the table. But if we don’t confront the reality of this chart, Defense is going to be in even worse shape than it is because of the simple realities of how the discretionary budget gets funded. We have to confront those other issues. We cannot afford to ignore them, because if we do it is Defense that will pay the highest price. It is a majority of the discretionary budget, so we will get hammered.

Q: Do you see a method for this, for further cutting Defense short of Sequestration (??? Not fully audible)

A:Oh certainly.  We’ve got the $487 billion figure, I think we should work off of that, but the mechanism is just the normal year-to-year appropriations process. Sequestration… I do not believe the sequestration will happen. It is a blunt object, and at the end of the day, if we cannot find a way to stop it at an absolute minimum, we should say “Ok, we are not going to require you to go section by section. You have to make the same cut, but you can do it any way you want.”

And the other thing is, as I pointed out, the Bush tax cuts expire at the end of 2012. That $4.5 trillion dollars easily gets you past the sequestration point. But the whole sequestration law, the whole Budget Control Act, is very poorly put together. And I meant to mention this, and I didn’t… When we say that we have to cut $1.2 trillion in order to stop sequestration, the logical question is: Cut from what? There is no base line. The BCA does not tell you what you have to cut it from. Theoretically we could come out with a chart that says “Here is what our projected spending is,” one day, and you can have it go to the moon, and then come out the next day and say, “Alright, we’ve looked at it. We are going to come down by $1.2 trillion,” and you would have met the sequestration requirements. What I am saying is, we are going to have to re-write the sequestration law before January 1, one way or another, in order to make sure is makes sense and can fit. I believe that between now and then we will find $1.2 trillion in deficit reduction somewhere, somehow, and avoid the immediate sequestration. But as the gentleman asked, the problem is now. If we wait until September we will have done great harm to the economy.

Q: Do you think that would probably… (inaudible???)

A: Mmm, that’s debatable. You know, I don’t believe so. The Black Caucus put out their budget and it did not have further Defense cuts beyond the President’s budget. So, if we get to a rational world where we actually want to confront this problem, it seems possible that yes, but it’s not guaranteed.

Q:  I work here at the RAND Corporation. When it comes to the issue of Defense cuts, the media in particular generally focuses in on the issue of procurement because anecdotes of wasteful procurement spending are easy to come up with. But in the last review that the CBO did of the FYDP, they really honed in on the issue of the Operation and Maintenance Account and the impact of benefits, salary, health care, etc. for military personnel. That’s the real driver of future cost growth in the DOD budget. I would just like to get your thoughts on to what extent the planning for the cutting that we are seeing now is responding to politically convenient targets or strategically and structurally important elements of the budget.

A: Right. Clearly those are growth areas that need to be confronted. Now part of that of course, your personnel costs are at their lowest when you don’t have the personnel anymore. Making the reduction in the Army of 90,000 and the Marine Corp of 20… those are significant numbers that do save personnel costs in all those different areas. So clearly the Secretary of Defense has stepped up and made that proposal. And the other major driver, as is true of all portions of our budget, is Health Care. The Secretary of Defense did not duck that either. He put out proposals that basically increase premiums and co-pays and other things to increase the out-of-pocket costs for those people who are on any of the various TriCare programs going forward. And I want to keep that in perspective. Statistically people are great at making the argument for why their program needs to be protected. And you’ve heard this is like a 400% increase in the costs, “Wow, 400% increase! That’s brutal!” until you step back and you understand a couple of numbers. First of all, what they are talking about is, right now you pay about $500 a year—I  think it’s going up to $500—for TriCare for Life. That’s $500/year. It’s funny, you talk to most people who have health care, you’d say they pay $500… per month, for most of us, would be about right. But $500 per year? WOW! It’s going up, proposed, to a high of $2,100 per year, and that would be 9 years from now. So yes, if you go from $500 [per year] to $2,100 [per year], that’s a 400% increase, but still, 9 years from now paying $2100 (and this would lonely be the high end. $2100 would be the highest portion of it. Others would still be paying less) is not as big of an increase as it appears. And the other stat which is worth point out is that in 1996 your average member of the military who received health care through the military—either active duty or retired—was paying 27% of the cost of their health care (once you added up all the premiums, co-pays and out-of-pocket expenses). Right now the average member of the military is paying 10% of their health care costs, because none of those premiums or co-pays have gone up, but health care inflation has gone through the roof. 10%! At the end of the proposal that the Pentagon put out there, they would be paying 14%. Still roughly half of what they were paying in 1996. And that’s great! But I still have a whole lot of people coming in and telling me “How dare you make people in the military pay more for their health care?” And I understand the argument, I do. But that has to be part of the equation. We have to figure out how to do it fairly. And I will also say that I have a lot of people in the military coming up and telling me, “That is absolutely what you have to do. When I say I love my country and I will fight for my country, it’s not just that. I understand the broader issues, and I understand the balance that we have to strike.” So there is a mix on that. It is definitely an issue, but I don’t think you can accuse the Pentagon of ducking. They have put it out there on the table.

Q: Could I ask you to comment on one of your underlying assumptions?

A: Absolutely.

Q: …and that is: that these are things we need to do. I’m struck as you go around the world, how different our military is than any other military of our allies. They’ve made decisions about the role of their State in society that do not reflect large militaries. Which leaves us in a unique position of being the only people, it seems, that are responding to North Korea in hard, tangible military terms, or Iran in hard, tangible military terms. At what point do we have to say, “This cannot be.” This isn’t 1946, where the balance of economic power could reflect the balance of international power. The world has changed, and yet your assumption of what it is we need to do does not seem to have changed yet.

A: That is a very fair question, and I have looked at it, analyzed it a great deal, have read a lot of intelligent articles on both sides of it and could argue either point. It is my overall sense that our uniqueness has not gone away in terms of our global interest, and that we are still going to have to have a larger role in the world than most. In part because of the dominance that we have had over the last 7 years has meant that insurgent groups like Al Qaeda, threatening nations like Iran or North Korea, they may have problems with the broader world but they specifically focus on us as the cause of it. And that too is different for all these other countries. Iran and North Korea and Al Qaeda and these other groups are a greater threat to us. We are “the Great Satan,” we are “the Far Enemy.” Pick whatever quote you want from one of these groups. Because of the dominance that we’ve had, and the strong role that we have played in the world, we have made vastly more enemies than any of these other countries. In that sense we are much more directly threatened than some of these other countries.

Are we so directly threatened that our Defense budget needs to be as much more than the rest of the world as it is? That’s debatable. Could we reduce our presence in Europe, could we reduce our presence in other places, down-size that a little bit? Possibly. It’d be an interesting debate; we’d have to say how you’d play it. But I do think that those places are greater threats to us. I also think in Asia, in particular, there are at least a dozen countries that are looking to us as the only viable counter balance to China. And I think the fundamental shift in the power-alignment in Asia that would come from us deciding we were going to be France or Denmark and not be involved would be far more dramatic and affect our interests and global interests. But you could go on and one with different examples on both sides of that argument, frankly, and I think it is a discussion we need to have as we are looking at what the budget needs to be over the next ten years.

Q: Sir, thank you very much for coming and spending your time with us. I’ll try to make this short. Some of us in the room are old enough to remember Gramm-Rudman-Hollings. That was a very imperfect vehicle, but it did focus attention on the budget deficit at the time. What modality do you see as possible for indeed focusing the body politic and moving this forward? Is there a modality like Gramm-Rudman-Hollings forming up in the corridors?

A: I’m smiling, it’s a very interesting question because it’s just that I am not normal in this regard. With Gramm-Rudman-Hollings, what all of this is, we know what we have to do. We also know that we are utterly too spineless to actually do it. So what sort of mechanism can you set up to force us to do it? It’s like: could you put a padlock on the fridge so I can lose weight? That, to me, is sort of like, either you make the decision and you then have the discipline to carry it out, or you live with where you’re at. That has always sort of been my approach. Once you decide to do something, you do it, however hard it is. And if it’s at the point where it’s harder than you want to, then you don’t do it. You make that choice. We are constantly trying to come up with these ways to sort of trick us into doing what it is we ought to be able to do, and that’s not the way I look at the world. Undeniably it is occasionally effective. I do not know how effective Gramm-Rudman-Hollings was. My memory is that we basically ignored it in every single year except for one, so I don’t think it actually got us there.

Q: (inaudible)

A: It did. Yeah, no it helped. Frankly, the single biggest thing—other than the tech boom—that helped us deal with the deficit last time was Ross Perot, ironically. It was a guy with billions of dollars who wanted to spend them. He made the deficit have a constituency, which it had never had before. Now, that constituency was a little confused and a little contradictory (because once people actually stepped up and confronted the deficit, they were all voted out of office), but it nonetheless at least focused the attention of the country and of politicians on it. So I’m not opposed to gimmicks, to be contradictory, if those things help folks. Because to some degree sequestration helps, in the sense that we are kind of driving towards the edge of a cliff and that does focus the mind a bit better. But at the end of the day I am always of the mindset that it is what it is. Either you choose to confront it, and you have the discipline to confront it, or you don’t. Because the truth of the matter is that if someone puts a padlock on the fridge, you go out to Burger King. There is always a way around that if individually you have decided that you are not actually going to do it. So that’s my bias. But you know, if gimmicks help to move it down the road, then that’s fine.

Yes, I’ll have to make the last question.

Q: Thanks Congressman, I’m Kevin Baron from National Journal. I wanted to ask you about the timing of all of this. There is nobody on the Hill or the Pentagon that I have spoken to that thinks that anything is going to pass until after the election. And as one of the justifications that the pundits make for this one year delay is that “We’re not going to get it done. Why even flirt with the budget? Everyone has to start preparing. What are your thoughts on the timing? Do you see anything happening by then, before then, and does it matter […?] passed this year?

A: Yeah, that’s a much more sophisticated way of asking the same question that the first person asked, and I will give the same answer. It needs to happen as soon as it can happen. I think any talk of, “well, we get to wait for the election” is highly irresponsible. This problem is now, and I think we need to start driving home that point. I think people are falling into the easy comfort of “well, of course nothing is going to happen before the elections, therefore I don’t have to think about it.” Part of the purpose of this speech is to say: No. This is right now. Decisions are being made, the economy is being negatively impacted. We are headed down a path that is unacceptable if we don’t try to do something now. The analogy that is occurring to me… I read Into Thin Air, a book about climbing Mt. Everest, and how people who have hypothermia, right before they die they feel kind of comfortable, they say, “well, actually this is kind of alright.” You’ve got to get up, you’ve got to get moving, however comfortable it might feel. So yeah, that is problematic.

I hope we don’t come up with another “let’s just delay this 3 months, let’s just delay this 6 months.” We are once again, as we sit here on the precipice of the Transportation bill, being exactly in that same position. We can’t come up with any sort of agreements, so we try to come up with a short-term agreement. Unless we confront this overall issue—I think it’s more revenue—we are boiling slowly in the water (to give another analogy here) and just thinking we are kicking the can down the road. Think of what breaks free, if we actually come to a decision that gets the deficit down to a reasonable level. It gets us on pace to just have debt to GDP to be 50-60%. And we know what those numbers are, ok? We know what we are going to be reimbursing doctors for. I mean, I love that one: ten years ago we had those proposed cuts, and at the time we tried to come up with a ten-year solution and we couldn’t, it was too expensive. Well now we’ve done ten one-year solutions, so obviously we could have come up with a ten-year solution. And on and on. Transportation, the FAA bill, every single thing, all the tax cuts that are set to expire—not just the Bush tax cuts, but also the ones that are set to expire every 6 months regularly anyway—all of that uncertainty could be dramatically reduced if we came up with a ten-year plan to get the deficit under control that honestly looked at these numbers. I think it is imperative that we do something before that.

Thank you very much

(END: Closing remarks by host)