Bloomberg News

Republicans, Democrats Differ on How to Save Defense Budget

October 14, 2011

(Updates in eighth and 14th paragraphs with Senator Levin’s recommendations to supercommittee.)

Oct. 14 (Bloomberg) -- U.S. Representative Howard P. “Buck” McKeon, the California Republican who leads the U.S. House Armed Services Committee, and Adam Smith of Washington, the panel’s top Democrat, are urging Congress’s supercommittee to avoid further cuts to the Pentagon’s budget.

Their Senate counterparts are doing the same. Where they disagree is on how that might be done.

The two House colleagues yesterday released their letters to the supercommittee, which is tasked with cutting the federal deficit by up to $1.5 trillion over the next decade. McKeon called on the panel to find reductions in non-defense entitlements, such as Medicare and Social Security. Smith pressed the special panel to increase federal revenue instead.

McKeon said that his message to the 12-member supercommittee is to find the cuts “out of the mandatory side,” while Smith in a letter to the special panel said that “including revenues in an overall balanced approach to deficit reduction is the best course of action for the committee.”

In the Senate, Carl Levin of Michigan, chairman of the armed services panel, and John McCain of Arizona, the panel’s top Republican, repeatedly said this month and last that they wouldn’t recommend further cuts beyond the roughly $450 billion in reductions already projected over the next 10 years.

Senate Plans

Hawaii Democrat Daniel Inouye, who leads the Senate Appropriations panel, said last week that cutting the defense budget more than already planned would be “detrimental” to national security.

“We have not been asked to make any additional recommendations on discretionary spending,” Levin said in an interview. “We may make recommendations on some of the entitlements.”

Levin and McCain in their official letters making recommendations to the supercommittee urged no further cuts to the defense budget. Both lawmakers detailed their support for revisions to military health care and retirement benefits.

McCain today said he supported a proposal made by President Barack Obama to establish an annual enrollment fee for the military’s Tricare for Life health insurance program.

“While this fee increase would hit those age 65 and over, a group on mostly fixed incomes who are vulnerable to unanticipated changes in expenses, I believe this fee increase is a reasonable step,” McCain wrote.

Pharmacy Fees

McCain also backed an Obama proposal to increase fees for pharmacy services. McCain cautioned that it might lead to “significant increases in out-of-pocket costs” for beneficiaries and pressed for consultation with the Defense Department on the matter. Another issue of consultation with the Pentagon would be a Congressional Budget Office proposal to restrict working-age military retirees and their dependents from enrolling in Tricare Prime, the military health-care option with the lowest out-of-pocket expenses, said McCain.

McCain also said that he would support the president’s proposal to establish a commission to review military retirement benefits. The panel would operate similarly to the 2005 Defense Base Closure and Realignment Commission, which presented Congress with a plan it had to either accept or reject without changes. McCain cautioned that current retirees and those already serving should be “grandfathered” so that their retirement benefits are not reduced.

Independent Commission

Bloomberg News reported on Oct. 6 that the supercommittee may consider whether cuts in all federal pensions, pay and health-care benefits, including those for the military, should be drafted by an independent, BRAC-like commission.

Levin, in his letter to the supercommittee, today recommended that the independent commission looking into military health care and retirement should also consider military compensation, including basic pay, allowances, special and incentive pay.

Levin rejected the president’s proposal to apply the same co-payment to preferred and non-preferred brand name drugs under the Tricare pharmacy benefit. “The president’s proposal would compromise the Department’s negotiating leverage with pharmaceutical manufacturers,” Levin wrote to the supercommittee. “These discounts are important to reducing the cost to DOD.”

McKeon yesterday cautioned against overhauling military health care and military retirement benefits, which was suggested by a Pentagon advisory board.

Caution Urged

“We urge the joint select committee to exercise caution when considering many of the existing deficit reduction proposals relating to service-member benefits,” McKeon wrote on behalf of Republican members of his panel.

“Avoid to the greatest possible extent adopting multiple simultaneous changes to military retirement and health care,” he said. The “combined effects will have a devastating impact on the fiscal and quality of life of military retirees.”

Military benefits must be viewed with the dangers and the extended absences from family in mind, McKeon said. The benefits must also be formulated “in the context of expected life stream earnings.”

The Defense Department faces cuts of about $450 billion from its 10-year spending plans, even before the supercommittee makes its recommendations. If Congress fails to act on the recommendations by Dec. 23, the August budget bill signed by President Barack Obama calls for automatic cuts, including an additional $500 billion from defense spending over a decade, not including interest.

Forced Choice

McKeon told an audience at the American Enterprise Institute on Sept. 12 that his “suspicion” was “the White House and congressional Democrats insisted on that defense number for one purpose: to force Republicans to choose between raising taxes or gutting defense.”

During a question and answer period after his speech, McKeon said that, if he were faced with the choice between raising taxes or protecting the defense budget, he would “go to strengthen defense.” McKeon said that he had never voted for an increase in taxes and that he would “never plan on voting” for such an increase.

Defense Secretary Leon Panetta and defense industry trade groups, such as the Aerospace Industries Association, have raised alarms. In a hearing before McKeon’s panel yesterday, Panetta said that additional cuts and particularly the automatic trigger would “truly devastate our national defense.”

“It will badly damage our capabilities for the future,” Panetta said.

If the automatic cuts take effect, the Pentagon would have its budget cut to about $437 billion -- about the same amount as in fiscal year 2003, McKeon said. The Pentagon would operate under such a budget through 2021, according to McKeon.

--Editors: Steven Komarow, Jim Rubin.

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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