US Expenditures and Budgeting

Introduction

The budget of the United States is subject to common criticism from all possible sides: representatives of both political parties, scholars, and common people. There are many elements of the budget that need improvement and can be criticized. This is especially true after the global financial crisis of 2008, which began in the United States and spread all over the world. Although the economies, including that of the US, seem to be recovering, the crisis has made a significant impact, putting the US in greater national debt. Military expenditures of the US are among the greatest in the world. At the same time, these are among the main disputable issues in the US budget. Despite the unstable economic situation in the country, military expenditures are not decreasing significantly, as the US takes part in military conflicts all over the world, sets its’ bases across all continents, and keeps on financing nation-wide anti-terrorism programs.

Research question. What are the dynamics of the US military expenditures and how do they influence social spheres of the United States?

Hypothesis. With the on-going financing of military operations both in the United States and abroad, the social spheres remain underfinanced, which has a negative impact on the US population.

Methodology. This research is based on the analysis of secondary sources, such as analytical papers and peer-reviewed articles. Within the research a review of the US budgets of past several years was made, in order to see the changes happening in financing of different spheres of national activity throughout the period. A special focus was made on the major expenditures of the United States in the 21^st century. The background for significant support of military programs was reviewed, as well as the consequences of such policies. The research conducted for this project was to a large extent qualitative.

Costs: US Foreign Policy and Domestic Concerns

The Wars in Afghanistan and Iraq

Military campaigns in Afghanistan and Iraq cost the US treasury from four to six trillion dollars according to different sources. A significant part of the specified amount is estimated to be long-term costs of health care for service members, veterans, and their families and their compensation for disability. Considering the cumulative total of the victims, the US military counted the number of the US citizens lost in the two wars: 4804 soldiers were killed in Iraq in the period from March 2003 to February 2012. At the beginning of June 2013, 3,323 soldiers have died in Afghanistan and northern Pakistan since 2001. The picture of the wounded soldiers in both theaters of operations is as follows: 32,223 were wounded during the invasion of Iraq in 2003; 17,674 have been wounded in Afghanistan. Data on mental disorders associated with the military in Iraq, Afghanistan and Pakistan is not available.

The US government has spent about $ 1.6 trillion on the two main elements of the national military programs since the attacks of September 11, 2001: the military actions and the fight against terrorism in Iraq and Afghanistan. The Bloomberg, report says that since the attacks of September 11, 2001 and till September 2014, the US Congress appropriated $ 815 billion for the war in Iraq; $ 686 billion for military operations in Afghanistan and a number of operations against terrorists; $ 81 billion for other costs directly associated with military operations. 27 billion USD went to finance the program of patrolling the US air named Noble Eagle.

The US “War on Terror”

The tragedy of September 11 forced the White House to create a Homeland Security Council (HSC). This has become a new body designed to advise and assist the President in several spheres related to terrorism detection and tackling, such as the development of the internal security strategy. Moreover, the HSC was seen as an instrument for coordinating the efforts of all structures of executive power, as well as generating and implementing a security policy in the United States. The President administration has created a new position – Assistant to the President for Homeland Security. Within the council there is a post of National Director / Deputy National Security Advisor for Combating Terrorism. This person constantly stays in touch with the President’s assistant on national and internal security.

Department of Homeland Security was another institution that was created as a response to 9/11 events. It was designed to unite most of the agencies and offices responsible for internal security. The main tasks of the new ministry included the following: the prevention and aversion of terrorist attacks in the United States; reducing the country’s vulnerability to terrorism; minimizing the damage and helping in the aftermath of the terrorist attacks in the United States.

To coordinate the actions of the army headquarters’ structure on various levels, the United States has created the so-called combined groups of interagency coordination to combat terrorism, along with Central Command (CENTCOM). In CENTERCOM the relevant unit is called Combined Joint Interagency Task Force.[1] The mission of these groups is an effective interagency coordination and information exchange between civil and military structures in appropriate areas.

The next step was the creation of the Terrorist Threat Integration Center (TTIC) in 2003. This organization is responsible for the integration and analysis of all the information on terrorism both inside the country and abroad. TTIC is comprised of the representatives of the Department of Homeland Security, center for combating terrorism, the CIA, the FBI anti-terror control, and the Defense Ministry. Director of the TTIC is subject to the Director of the CIA. The whole organization has its’ office at the headquarters of the CIA.

In September 2003, another focal point in the war on terrorism was created as a part of the Federal Bureau of Investigations – the Terrorist Screening Center (TSC). The task of the TSC was to merge all existing lists of wanted terrorists into a single database. In June 2005, the Centre was strongly criticized for its bad management of computer systems.  In August 2004, President George W. Bush signed a decree, according to which National Counterterrorism Center (NCTC) should be created in response to the recommendations of the 9/11 Commission. NCTC was planned as a subordinate to the Office of the Director of National Intelligence.

The Military Budget

On December 12 the US Congress adopted the defense budget for fiscal year 2015. According to the document, the total amount of military expenses became more than $ 584 billion. The budget includes the extra spending on military operations against Islamists in Iraq and Syria. Consequently, $ 3.4 billion will go to Operation Enduring Commitment, undertaken in the fight against Islamic state (IS). Another $ 1.6 billion will be allocated to the arming of the Iraqi Kurds, leading military operations against the IS.[2] The adopted document expands the military support to the moderate Syrian rebels. At the same time, there are budget restrictions imposed on the phased closure of the Guantanamo Bay prison in Cuba, a project introduced with the support of Barack Obama. In particular, there will be an extended ban on the transfer of prisoners to the United States.

Pentagon spending on military operations in the next fiscal year will decline, according to Bloomberg reports. In 2015 it was allocated 64 billion dollars on foreign military operations, including the US operations in Afghanistan, Iraq and Syria. The request by the Pentagon to finance foreign operations will be sent in February, in addition to the basic cost of the defense, which will make 534 billion dollars. At the same time the US president will have to propose to Congress a draft federal budget for 2016 fiscal year. The US military budget for 2015 is $577 billion.

US Military Bases Around the World

According to the Pentagon’s list, there are more than 865 US military bases around the world, but with bases in Iraq and Afghanistan, the number grows to over 1000. This is 95 percent of foreign military bases around the world. In mid-December 2014, Obama said that the US would abandon the use of major military units abroad. On January 8, the Pentagon said that the reduction of military bases in Europe would allow the US to save about $ 500 million a year, without reducing the number of US troops in Europe (currently about 67,000). The Pentagon is planning to terminate the air base in Mildenhall (the United Kingdom) in 2015. However, the USA will establish the first squadron of F-35 – American fighters of the fifth generation in the same county of Suffolk, on the basis of Lakenheath. The United States has already returned 14 military bases, which were used in Europe, including Germany and Portugal.

The “Great Recession”

In 2008 a global financial crisis began, which manifested itself in the form of a strong decline of major economic indicators in most advanced economies, and which later grew into a global recession economy. The crisis could be attributed to several factors: the general cyclical economic development; overheating of the credit market and the mortgage crisis, which has become its consequence; higher commodity prices (including oil); overheating of the stock market. The 2008 financial crisis was preceded by the subprime mortgage crisis in the United States, which in early 2007 affected the high-risk mortgage loans. The second wave of the mortgage crisis occurred in 2008 and spread to the standard segment, where loans issued by banks were refinanced by the governmental mortgage corporations. Due to a 20% fall in property prices, American homeowners became poorer by nearly five trillion dollars.

The most significant result of the first wave of the crisis was the collapse in May 2008, of the fifth-largest US investment bank Bear Stearns, ranked second in the US among underwriters of mortgage bonds. In September 2008 the US mortgage crisis triggered the liquidity crisis of the world banks: banks stopped providing loans, particularly loans for purchase of cars. As a result, sales volumes of automakers started to decline. Three car giants – Opel, Daimler, and Ford, stated the reduction of production volumes in Germany in October 2008. From the real estate the crisis spread to the real economy, a recession, decline in production.

On the 15^th of September 2008 the US bank Lehman Brothers indebted to the point of $ 613 billion and went to court with an application for bankruptcy and for protection from creditors. The bankruptcy of Lehman Brothers has been the largest in the US history. Never before has such a powerful financial institution been ruined. Busting of the fourth-largest US investment bank had a negative impact on the main stock exchange quotations in many countries and a negative impact on energy prices.

Oil prices fell from $ 147 per barrel to less than $ 40. The stock market crash in October 2008 was a record year for the US market for the past 20 years, and for the Japanese market it was a record year ever. Within the two years of crisis the largest respectable investment banks with hundred years of history collapsed. Bank of America swallowed Merrill Lynch, and Solomon Brothers and Morgan Stanley changed their status: investment activity has been replaced by commercial. Pillars of business, such as General Motors, Chrysler and others, turned to the government of assistance. In fact, it was a nationalized private debt: the largest financial institutions – Fannie Mae and Freddie Mac (USA), and holders of private mortgage debt of 14 trillion dollars, were bought by the state.

“Bush-Era” Tax Breaks

Although President Bush professed faith in low taxes and limit government, his governing period could be described as a substitute for real policy rhetoric, designed to solve the problems of individual productivity. In other words, economic mistakes during the presidency of Bush indicate his inability to agree on policies to rhetoric. Perhaps it is best to start with the passage of the Sarbanes-Oxley Act in 2002. If with the bankruptcies of Enron and Worldcom on the background, the industrial Dow Jones index just decreased (in total for 3%), it became clear that Bush would sign the law, which he called “the most stringent laws against the crime of legal entities since the time of Franklin Roosevelt”, the Dow Jones index went into a free fall. Bush earned points in the rhetoric, as the President, who spoke on the general opinion in the interests of business; but at the same time he ignored the classical economic truth about the need to stimulate people and companies.

Consequences

Barack Obama has already presented to Congress a draft budget for 2016 fiscal year. It provides for a deficit of 2.5% of GDP with a view to increase it. The president of the United States sees no reason for excessive frugality when the economy is growing. Thus, budgetary expenditures are assumed in the amount of nearly $ 4 trillion. They include defense spending of more than half a trillion. The bill sets the bar for budget expenditures of $ 3.99 trillion with total revenue of $ 3.53 trillion. Thus, the document provides for a deficit of $ 474 billion, accounting for 2.5% of US GDP.

The first draft budget contains a proposal to end Obama’s policy of comprehensive cost reduction. Democrats and Republicans agreed on it four years ago, but with the recovering economy Obama described it as senseless frugality. Two years ago, the two parties agreed on the abolition of the restrictions on spending, but the term of the agreement expires in October when the new fiscal year starts. Supplies of the budget will be the subject of bargaining between the president and the Republican majority in Congress. So, Obama spoke strongly against Republican proposals to increase defense spending by 7% if the commensurate resources are allocated and domestic spending. The draft also contained several proposed by Obama programs to support the middle class and the development of infrastructure. In particular, the president wants to direct $ 478 billion towards the construction and repair of highways, bridges and the overall upgrade of the transport system. All these measures are to be implemented by means of higher taxes for the wealthy citizens and business representatives.

National Debt

Last summer the United States was on the verge of technical default. Then the US government could not agree on raising the debt limit of the country. As a result, the agency Standard & Poor’s stripped the state of higher credit rating. National debt of the United States was approximately 14 times lower30 years ago. Nowadays the US holds more than a third of all public debt of the world. The US national debt is growing by more than 4 billion dollars daily. Therefore, the future generations are living in the shadow of the continually increasing national debt. People have yet to realize that the debt is something that will have to be paid out by the next generations.

Education

The American Federation of Teachers and the National Education Association have strongly criticized the budget proposals for 2015 given by Paul Ryan, the chairman of the Committee on Budget of the US House of Representatives. Despite fierce opposition, the House of Representatives voted for Ryan’s proposed budget for 2015. The budget received harsh criticism from educators as it proposed dramatic cuts in education expenditures; training and programs to combat hunger; increasing taxes for the middle class; stopping health insurance program “Medicare” and reducing sharply the program of medical assistance to low-income citizens. This budget actually dismantles ladder opportunities for Americans with low and middle incomes. Meanwhile, it provides tax breaks for companies that move American jobs abroad, and tax increases for the middle class and reducing taxes for the rich.

Health Care (Medicare and Medicaid)

It is a well-known fact that the US health care system is the costliest in the world. For example, only in 2007 the nation spent 2.26 trillion dollars on health, which is 7,439 dollars per person. According to the latest estimates, in the United States around 16% of GDP is spent on medical care each year. It is expected that the share of GDP allocated to health care in the United States will be constantly increasing and by 2017 it will amount to 19.5%.

According to some experts, unsecured obligations of the US government program of public pension and Medicare are approaching 60 trillion dollars. Other experts argue that the general unsecured obligations of the federal government may be more than $ 100 trillion. One way or another, almost everyone agrees that the US will be almost beyond the power of even attempting to meet all these obligations. In 1965 only one of the 50 US citizens received assistance program Medicaid, while today one out of six Americans participate in Medicaid. This is the most difficult financial problem of the country.

The first 77 million baby boomer generation reaches the age of 65 years old this year and becomes eligible for Medicare. The post-war baby boom – along with the expansion of the list of preferential medicines in 2006 and a general increase in the cost of healthcare, creates unfunded liabilities of about $ 25 trillion. The actual cost of Medicare would increase from $ 523 billion in 2013 to $ 861 billion in 2020.

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