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Martin Feldstein and the Defense Budget

April 29, 2007 By david-eisenthal

In an article in the March/April edition of Foreign Affairs, Feldstein, who is the George F. Baker Professor of Economics at Harvard and a former Reagan administration economic advisor, argues that “a substantial increase in defense spending is necessary to protect and enhance U.S. national security.” He further argues that we can afford to allocate a substantially larger share of the economy to the military. The number that he suggests is 6 percent of the Gross Domestic Product, which was the defense budget’s share of the economy at its peak under the Reagan administration in the 1980s. (As a comparison, most of our European allies have military budgets that are at between 2 and 3 percent of GDP.) The GDP is currently approximately $12 trillion. With 5 percent annual growth, the GDP will be nearly $17 trillion within seven years. If the defense budget is six percent of this number, it will be a cool $1 trillion.

Feldstein’s argument as to the merit of a doubling of the defense budget in nominal dollars is as follows:

Deterring other great powers, such as Russia and China, will require Washington to maintain its dominance in conventional warfare and therefore at least to maintain its current level of military spending. But in addition, the United States now faces three new types of threats for which its existing military capacity is either ill-suited or insufficient. First, there are the relatively small regional powers, such as North Korea, Iran, and Pakistan, that can or will soon be able to strike the United States and its allies with weapons of mass destruction (WMD). Second there are global non-state terrorist networks, such as Al-Qaeda, with visions of re-creating the world order. And third, there are independent terrorists and groups motivated less by a long-term vision of global conquest than by hatred, anti-Americanism, and opposition to their own governments.

National security policymakers face the question of whether the amounts and the way that defense and homeland security dollars are spent are adequate to the task of protecting this country from enemies, foreign and domestic. It is indeed possible that a serious dialogue will begin now that the Appropriations Committees in Congress are both chaired by Democrats. While it is possible that defense dollars may need to increase, it is unlikely that a serious examination of our needs will reveal the need for an increase of the scope contemplated by Feldstein. Such an increase truly would benefit only the Pentagon and its contractors.

Beyond the national security policy merits of Feldstein’s proposal is how the former Reagan administration advisor would finance this fiscal shift to the military: by reducing the share of GDP allocated to discretionary non-defense public spending and by cutting tax expenditures – monies lost to the federal treasury through deductions and exemptions of certain spending from personal income for tax purposes. Tax expenditures include deductions for home mortgage interest and state and local taxes.

Feldstein’s is the classic brief on behalf of the military industrial complex – and against the middle class.

The suggestion that such an increase should be financed by reducing deductions of home mortgage interest and state and local taxes is a direct threat to the middle class. The wealthy will have already benefited from the substantial reduction in marginal personal income tax rates – and capital gain taxes – approved by Republican Congresses and a Republican President.

Those of us who watch the politics of the federal budget, defense spending, and taxation – and how these affect most Americans – need to be vigilant against such proposals as these gaining traction in the halls of Congress and – particularly after next year – the White House.

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Filed Under: User Tagged With: defense, deficit, feldstein, national, taxes, us-budget

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