As China’s military budget continues its rocket-like trajectory upward for the eighth straight year in a row, America’s military spending—and ambitions—are in decline.
This is before even accounting for all of Beijing’s yuán for hard power that U.S. intelligence agencies now estimate as roughly approaching our own. While the United States is coming out of the Budget Control Act era and confronting spending handcuffs yet again, China regularly doles out double-digit increases for its military.
But the U.S. military will start the next fiscal year $90 billion in the hole—behind where the defense budget was just three years ago.
For a variety of reasons linked to expenses on autopilot, the U.S. military’s budget must be cut from within every single year to simply tread water. The reality is that most spending is fenced or fixed inside the defense budget with precious little trade space for leaders to impose change or shift course. Further, to remain competitive in attracting talent, the so-called mandatory bills inside the defense budget get bigger every year, whether the topline matches inflation or not.
The result is reduced buying power year over year that slowly erodes American combat capability and eats away at the force over time. When weighted against just pre-pandemic inflation, the military sees a colossal drop in buying power in just the past few years alone.
The impact is akin to the United States sharpening its bayonets when the rest of the world is girding for hypersonic weapons.
However, many Americans have no doubt noticed that their money isn’t worth as much as it was just a few years ago with elevated inflation persisting. The Pentagon is not immune from this challenge. Indeed the effects of compounding inflation have diminished buying power steadily for years, resulting in a defense budget that is losing ground and falling behind.
A declining defense budget disguised under bigger numbers still reaps the consequences and the result is faltering conventional deterrence. Beijing has noticed; Tehran is increasingly aggressive; and, Moscow continues to wreak havoc in eastern Europe.
Where Does the Military’s 2024 Budget Really Stand?
At first glance, the armed forces budgets appear immense in the latest White House request, with the Army at $185.5 billion, Navy at $202.5 billion, and the Air Force at $185.1 billion. But once pervasive inflation of the last few years is factored in, the reality changes starkly.
In the chart below, the blue category represents President Joe Biden’s topline budget request for fiscal year (FY) 2024 for the Army, Navy and Air Force. The Marine Corps, Space Force, and other pass-through and defense-wide funding was omitted to make more direct comparisons.
To accurately assess the continuing decline in military purchasing power, funding levels were reverse calculated using start of fiscal 2021 consumer price index (CPI-U) averages to illustrate what the proposed 2024 topline would be worth in October 2020. Comparing and contrasting the 2024 budget request with inflation levels of FY 2021 is beneficial, as the FY21 budgeting process experienced a period of relatively stable inflation, nearly six points down from March 2022, and within a point of the Office of Management and Budget’s (OMB) average inflation estimate of 2.2 percent for future years’ defense spending. 2021 was also the first year that Space Force funding was separate from Air Force totals, allowing for a more accurate outlooks.
This loss in buying power between FY21 and FY24 is represented grey bars in the chart. For example, the Army’s 2024 budget request stands at $185.5 billion. When calculating for inflation, $185.5 billion today buys the same amount of goods and services as $158.8 billion could in FY21. That is a $30 billion difference in buying power in just three years.
What Difference Does 3 Years Make?
This hidden disease of real negative growth in the defense budget highlights why politicians’ focus on the supposedly record-high defense topline in 2024 is misplaced.
The more appropriate question to answer is what would the Pentagon budget look like if this loss of buying power was being adequately addressed? The third green bar illustrates the difference that could be made up to right this wrong, representing what the services’ toplines would need to be in 2024 to have the same buying power of 2021.
To find this new value, FY24 budget toplines were increased by 16.8 percent to offset that value lost to inflation since FY21. Returning to the example of the Army, if this year’s budget request kept pace with the buying power present in FY21, the Army’s 2024 budget would total $216.7 billion—a roughly $30 billion increase for next year. The other services share similar results.
The armed forces are therefore going to start this coming fiscal year in 2024 nearly 90 billion dollars behind 2021.
Why Does this Matter?
It’s no surprise our military is falling behind when budgets aren’t breaking even.
Even a hypothetically flat topline—which the White House is not seeking nor is Congress providing—would not reverse recent declines in military buying power, capacity, presence and capability. The effects of this budgetary mismatch repeatedly bear fruit that is bad.
The Army is considering cuts to overall manpower and their potent special forces. The Air Force is busy retiring nearly 1,400 aircraft over the next five years, while purchasing only a third of that amount in replacements. The Navy fares similarly, as China continues to pump out hulls and grow its naval capacity, with retirements outpacing shipbuilding. Drops in procurement across the services have resulted in permanently shuttered production lines, delaying the ability to ramp up our essential defense industrial base.
As the administration continues to pile on more responsibilities on our shrinking armed forces, consistently providing real increases are key to maintaining credible and potent forces that are also trained and ready. To fully execute the national defense strategy, the armed forces need real growth above inflation to convince Beijing that tomorrow is not the day to attempt to take Taiwan by force.
A failure to utilize uniform, realistic inflation estimates has allowed Washington to draw misleading conclusions on the size and impact of the latest inadequate defense budget request. The ‘24 topline may be nominally the largest in history; however, in real terms the military is losing money at a rapid clip.
Mackenzie Eaglen is a senior fellow at the American Enterprise Institute (AEI), where she works on defense strategy, defense budgets, and military readiness. She is also a regular guest lecturer at universities, a member of the board of advisers of the Alexander Hamilton Society, and a member of the steering committee of the Leadership Council for Women in National Security.
