In today's Financial Times, Clive Crook argues bluntly that Obama's call for "shared sacrifice" means -- must mean -- new taxes. He proposes a 4-point fiscal reform program for the U.S:
Here is what needs to be done, starting in 2011, but to be announced and enacted as soon as possible. First, raise the retirement age. Second, phase out income tax relief on new mortgage loans. Third, introduce a carbon tax. Fourth, introduce a national value added tax, tied to healthcare reform.
Raising the retirement age and and taxing energy consumption are no-brainers. Reducing state support of homeownership violates U.S. taboos but makes sense at least on the margins, e.g. for second homes or for mortgages over a certain amount. A VAT to fund healthcare reform would be, to borrow a pet Obama phrase, a steep hill to climb in political terms, but makes sound fiscal sense.
Crook did not, however, address a spending target that looms as large as social security: defense. Obama stressed throughout the campaign that drawing down the U.S. occupation of Iraq would save an unspecified portion of a $120 billion yearly tab. Even if the withdrawal goes more or less as planned, some of that money will support tens of thousands of remaining troops and some will go to the Afghanistan/Pakistan morass -- where Obama doubtless aims to spend some of his international political capital on obtaining more help from allies.
Most fundamentally, however, Obama will likely take aim at the Pentagon's long-term procurement programs. And in this struggle he will have a no less formidable and savvy ally than Defense Secretary Robert Gates, who has already been working to reign in the Pentagon's deep-rooted penchant to overinvest in a vast array of high-tech hardware designed to win a prospective World War III.
In a series of speeches and writings this year, Gates has outlined the need to shift spending toward counterinsurgency capability -- pilotless drones, well-armored vehicles, more soldiers. These things are not cheap, but they're a lot cheaper than massive procurements of next-gen hardware designed to fight a militarily competitive nation-state. Here's Gates speaking to the Heritage Foundation, on May 13, 2008:
In a world of finite knowledge and limited resources, where we have to make choices and set priorities, it makes sense to lean toward the most likely and lethal scenarios for our military. And it is hard to conceive of any country confronting the United States directly in conventional terms – ship to ship, fighter to fighter, tank to tank – for some time to come.Two days later, speaking to military contractors, Gates highlighted the Herculean task of turning Pentagon priorities:
A common mantra at Defense is that the rest of the government isn't at war. Well, a lesson I learned fairly early on was that important elements of the Defense Department weren't at war. Preoccupied with future capabilities and procurement programs, wedded to lumbering peacetime process and procedures, stuck in bureaucratic low-gear. The needs of those in combat too often were not addressed urgently or creatively.More recently, outlining the National Defense Strategy in the current Foreign Affairs, he cast Pentagon budgeting as a problem of risk management:
The most likely catastrophic threats to the U.S. homeland -- for example, that of a U.S. city being poisoned or reduced to rubble by a terrorist attack -- are more likely to emanate from failing states than from aggressor states...It is true that the United States would be hard-pressed to fight a major conventional ground war elsewhere on short notice, but as I have asked before, where on earth would we do that? U.S. air and sea forces have ample untapped striking power should the need arise to deter or punish aggression -- whether on the Korean Peninsula, in the Persian Gulf, or across the Taiwan Strait. So although current strategy knowingly assumes some additional risk in this area, that risk is a prudent and manageable one.For forty years, it's been politically toxic for a Democrat to make cuts in military spending. Obama doubtless recognizes the need. And Gates gives him essential cover as well as unmatched know-how.
I should add that I don't know whether Gates sees his calls for "balance," risk management and triage as a means to cut defense spending or simply to control its growth. Note, however, that while lamenting 1990s reductions in "national security" capabilities in the Foreign Affairs article, Gates focused not on military spending per se but on the instruments of soft power:
In many ways, the country's national security capabilities are still coping with the consequences of the 1990s, when, with the complicity of both ends of Pennsylvania Avenue, key instruments of U.S. power abroad were reduced or allowed to wither on the bureaucratic vine. The State Department froze the hiring of new Foreign Service officers. The U.S. Agency for International Development dropped from a high of having 15,000 permanent staff members during the Vietnam War to having less than 3,000 today. And then there was the U.S. Information Agency, whose directors once included the likes of Edward R. Murrow. It was split into pieces and folded into a corner of the State Department. Since 9/11, and through the efforts first of Secretary of State Colin Powell and now of Secretary of State Condoleezza Rice, the State Department has made a comeback. Foreign Service officers are being hired again, his and foreign affairs spending has about doubled since President Bush took office.And while Gates' list of spending priorities is not short, his sense of finite resources is acute:
When it comes to procurement, for the better part of five decades, the trend has gone toward lower numbers as technology gains have made each system more capable. In recent years, these platforms have grown ever more baroque, have become ever more costly, are taking longer to build, and are being fielded in ever-dwindling quantities. Given that resources are not unlimited, the dynamic of exchanging numbers for capability is perhaps reaching a point of diminishing returns. A given ship or aircraft, no matter how capable or well equipped, can be in only one place at one time.In any case, on the broadest strategic question - whether and how much to cut the Pentagon budget -- Gates is not "the decider." Obama is.
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