Bin Laden and the Budget Debate

Will the Al Qaeda leader's death impact the unfolding political battles over defense spending and the debt ceiling?

The demise of Osama bin Laden has impacted everything from oil prices to financial markets. And the ongoing congressional fights over the debt ceiling and defense spending are not about to be spared.

Congress returned this week from its Easter recess and is facing a ticking clock on debt and budget policy. The debt ceiling debate has already been contentious over the past few months and spending hawks have been sharpening their knives with an eye on defense spending, but the pot is about to be stirred by death of Al Qaeda's infamous leader.

The national unity moment following September 11, 2001 was strong and led to the swift passage of the PATRIOT Act. And just as that demagogic violation of civil liberties was a policy of passion rather than reason, so too could this week's spirit of national pride and bipartisanship lead to a bad deal on increasing the debt ceiling.

The Obama administration argues that the debt ceiling and the long-term debt problem should be dealt with as two separate issues, but during the recess some Senate Democrats were already indicating their desire to ditch the administration in support of a compromise. Meanwhile, the Republican leadership has clearly signalled its willingness to accept the Treasury Department's request to raise the debt ceiling—it is just a matter of what can they get for it in exchange.

So it takes no leap of imagination to see bin Laden's death inspiring various members of Congress to push for a grand bargain.

But standing in the way of this are Tea Party activists and their allies on Capitol Hill, who have already vowed to stop any increase in the debt ceiling. They are unlikely to be swayed.

The office of Sen. Jim DeMint (R-S.C.), a major player in the Tea party movement, emphatically stated yesterday that DeMint's position on the debt ceiling had not changed in the wake of bin Laden's death and that any desire for a unity deal because of bin Laden's demise would be "wishful thinking." 

In contrast, those in the Tea Party who want to cut defense spending may be emboldened by the killing of bin Laden to push for faster, deeper cuts. President Barack Obama has already proposed cutting $400 billion from the Pentagon's budget over the next 10 years, but with Al Qaeda's leader dead, the case for increasing that number will only get stronger.

Even before Sunday's news, outgoing CIA Director Leon Panetta had his work cut out for him in being tasked to find those cuts as he takes over as secretary of defense (assuming he is confirmed by the Senate). A push for additional cuts would certainly be a challenge. However, the death of bin Laden could also be a strong card to play in winning the behind the scenes budget battles and may prove extremely useful to Panetta in the public eye as well.

The death of Adolf Hitler, followed a few months later by the Japanese surrender, not only marked the end of World War II, but also represents the peak of military spending in 1940s. Panetta and other deficit hawks would do well to follow this historical model in arguing their case against those trying to protect defense spending.

Certainly, there were costs from the occupation of Germany and Japan following the war. But actual expenditures, both in nominal terms and as a percent of GDP, dropped nearly 50 percent from 1945 to 1946.

Also, in the two years following the Korean War, defense spending as a percentage of GDP fell over 30 percent. And it took just two years after the fall of the Berlin Wall for defense spending's portion of the federal budget to drop 25 percent.

Since 2001, military spending has gone from $300 billion to nearly $700 billion. President Obama's budget proposal for FY2012 not only recommends increasing defense spending to $737 billion next year, but also only reduces spending over the short-term to $680 billion annually by 2016—which is more than we spent in 2009 on defense. The death of bin Laden should provide an opportunity to reassess the speed of this approach in the coming budget debate.

The president may also feel pressure to speed up the drawdown of troops in the region, which would save money. And he is certain to feel pressure from his party's anti-war left to reduce other military-related spending, like overseas contingency operations, which cost well over $100 billion each year.

This will have to be balanced with the reality that bin Laden's death is not the eradication of Al Qaeda—though it might prove to be a fatal blow. American intelligence agencies will certainly continue going after the remaining components of Al Qaeda's leadership network, but there may be little need for brigades of soldiers outside of a peaceful transition of responsibilities to Afghan security forces.

On this front, the administration will likely have an ally in the Tea Party, which already broke ranks with the Republicans to shoot down an engine program for the F-35 Joint Strike Fighter.

There will likely never be a complete end to the threat posed by jihadists. But the vast military apparatus built up in the wake of 9/11 has accomplished its task.

The ultimate impact of bin Laden's death on the debt ceiling and defense spending debates will play out over the next several weeks as various bipartisan commissions present their proposals, with arguments then moving to the floor of the House and Senate. Meanwhile, Thursday's GOP debate will give us a preview of how bin Laden's death will impact the Republican presidential campaign. One thing, however, is certain: The high stakes game of budget management is about to heat up.

Anthony Randazzo is director of economic research at Reason Foundation.