Biden shouldn’t stick to a defense-budget deal the House will not honor

As the Defense Department and the rest of government remain under a continuing resolution—a spending freeze at last year’s levels—more than one-third of the way through the fiscal year and face another potential government shutdown in March, Washington is already beginning to turn its attention to the next White House budget request. While the president’s fiscal year 2025 budget is not expected until mid-March, news about what it contains for the military is already leaking. We’ve already learned that the budget cancels an Army helicopter program, cuts an attack sub, and scales back the procurement of F-35s, among other major changes.

Beyond talk of program reductions, cancellations, and deferments, the Biden administration is expected to propose a topline budget for national defense at the level set by the budget caps in the Fiscal Responsibility Act of 2023, or FRA. While this may seem reasonable and prudent on the surface, it makes no sense once one examines the complications and mixed messages this creates for the armed forces and the White House.

First, while the Fiscal Responsibility Act is current law, there is nothing in it that requires the president to submit a budget request at the spending cap level for FY 2025. The FRA merely resurrects a section of the U.S. Code most recently used in the Budget Control Act of 2011 that limits how much Congress can appropriate for defense and non-defense discretionary accounts. The FRA was agreed to as part of a deal by President Joe Biden and former House Speaker Kevin McCarthy, R-Calif., to raise the debt ceiling and avoid a national default.

Yet even before the bill had passed, the House Freedom Caucus indicated it had no intention of sticking to the terms of the deal and would instead push for even deeper spending cuts. This is one reason the House is struggling to pass FY 2024 appropriations bills into law; the administration cannot get the House to adhere to the budget caps it set just a few months earlier.  Given this reality, why would the Biden administration stick to the FRA’s budget caps in its FY 2025 request when the House (and the Freedom Caucus in particular) has given every indication that it does not intend to follow the terms of the deal—this year or next?

Echoes of the Budget Control Act are in the air and offer a rough playbook for how this may progress. The Obama administration never accepted the full cuts imposed by the 2011 law. Each year, it proposed budgets that exceeded the caps on defense spending—for example, requesting $59 billion over the cap for FY 2013. It also worked with Congress to evade the caps by moving about $30 billion a year into the must-pass Overseas Contingency Operations supplemental budget. Proposing a budget higher than the caps and using the supplemental funding loophole gave the Obama administration room to negotiate increases in defense and non-defense discretionary spending (often for parity between them), which it ultimately won from Congress in the form of one- and two-year mini-budget deals to hike the previously set funding limits. 

If the Biden administration submits its request at the budget cap level, it is effectively giving up its negotiating space before negotiations between parties and branches begin. Still, the situation has changed: while the FRA contains the same loophole, supplemental funding bills are no longer considered must-pass. Nor are they requested annually with the rest of the budget as they were in the Obama years. 

What will be key to watch is whether the Biden administration plans to hold non-defense discretionary spending at the FRA caps as well. Given the budget fights already starting in Congress over side deals for potential boosts to non-defense spending, any increases to non-defense spending will likely have to come at the expense of the defense topline to keep overall spending at a level acceptable to fiscal hawks. The FRA limits FY2025 non-defense discretionary to $710 billion–a significant cut to the $1.02 trillion that the Biden administration projected it would request for FY 2025. Considering that many non-defense federal agencies saw double-digit percentage increases in the Biden administration’s initial FY 2024 budget request, the stage is set for further congressional budgetary battles.

More importantly, however, is what this means about how the FY 2025 defense budget was crafted. Budgeting to the caps is the very definition of letting the budget dictate your strategy. Strategy should of course be resource-informed, but it should never be resource-directed. The budget cap for national defense in FY 2025 is $895.2 billion, $10 billion less than the Biden administration projected it would need for FY 2025 in last year’s request, which was merely flat with inflation from the FY 2024 requested level. But we know from the past that operation and maintenance (O&M) and military personnel (MILPERS) accounts typically need about 3 percent growth above inflation just to maintain the same size force. FY 2024 projections from the services estimated slight growth or maintenance of force end strength, a challenge sure to be exacerbated by the budget crunch amid recruiting and retention shortfalls.

Allowing for historical growth in O&M and MILPERS, stubbornly high inflation, and previously projected growth in modernization accounts, the FRA budget cap is an effective cut of roughly $47 billion from previous plans for the military. This requires downsizing an already small force by historical standards, sacrificing military readiness, or disproportionately cutting modernization accounts—none of which are particularly attractive or in line with current defense strategy.

When the Pentagon cuts modernization, procurement accounts are often the biggest bill-payers. Key procurement items like munitions took a dive under the BCA caps, which created many of the munitions industry shortfalls seen today. FY 2024 requests for procurement already failed to offset inflation with negative real growth in FY24 budget request, and may now fare even worse in FY 2025. Lack of real growth in defense budgets has also spawned ever-growing unfunded priority lists from the services and combatant commands, where procurement often tops the list. Over the last two years, procurement requests have made up nearly half of all unfunded priority requests, as services struggle to find room for key priorities, including amphibious warships for the Marines, tanks for the Army, and crucial basing upgrades across the Pacific.

On the surface, it may make sense to show the consequences of the cuts required under the FRA as a way of forcing Congress to face up to the realities of the constraints it imposed. But the last time such an approach was attempted by Pentagon officials—more than a decade ago in the Strategic Choices and Management Review derisively dubbed the “scammer”—it did not work as intended. The lesson is that showing the worst-case scenario often elicits a shrug from Washington. A budget request at the FRA level will send the message, whether intentional or not, that the administration supports keeping the budget caps in place and that the cuts it forces are tolerable. The FRA then becomes the starting point for negotiations, and funding levels could only go down from there.

This is a strategic misstep the administration could have avoided. Allowing an effective reduction of some $47 billion in planned defense spending in one year alone undermines the Biden administration’s own defense strategy and takes away one of the key levers Democrats have used in the past to negotiate budget deals in Congress. Instead of taking defense hostage, it preemptively shoots the hostage. 

Regardless of the specific program choices that emerge once the budget is delivered, which will give us much to laud and criticize for months to come, this is already looking like one of the most difficult budgets the Pentagon has had to defend before Congress and the public in recent memory. The White House should take a cue from the Obama administration: ignore the budget caps, send over what it thinks the armed forces need to achieve the National Defense Strategy, and dare Congress to give them less.