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Escalating Military Spending - Income Redistribution in Disguise
How escalation of war and military
spending are used as disguised or roundabout ways to reverse the
new deal and redistribute national resources in favor of the
wealthy
By
Ismael Hossein-zadeh
Critics of the recent U.S. wars of choice
have long argued that they are all about oil. “No Blood for Oil”
has been a rallying cry for most of the opponents of the war.
It can be demonstrated, however, that there
is another (less obvious but perhaps more critical) factor
behind the recent rise of U.S. military aggressions abroad: war
profiteering by the Pentagon contractors. Frequently invoking
dubious “threats to our national security and/or interests,”
these beneficiaries of war dividends, the military–industrial
complex and related businesses whose interests are vested in the
Pentagon’s appropriation of public money, have successfully used
war and military spending to justify their lion’s share of tax
dollars and to disguise their strategy of redistributing
national income in their favor.
This cynical strategy of disguised
redistribution of national resources from the bottom to the top
is carried out by a combination of (a) drastic hikes in the
Pentagon budget, and (b) equally drastic tax cuts for the
wealthy. As this combination creates large budget deficits, it
then forces cuts in non-military public spending as a way to
fill the gaps that are thus created. As a result, the rich are
growing considerably richer at the expense of middle– and
low–income classes.
Despite its critical importance, most
opponents of war seem to have given short shrift to the crucial
role of the Pentagon budget and its contractors as major sources
of war and militarism—a phenomenon that the late President
Eisenhower warned against nearly half a century ago. Perhaps a
major reason for this oversight is that critics of war and
militarism tend to view the U.S. military force as primarily a
means for imperialist gains—oil or otherwise.
The fact is, however, that as the U.S.
military establishment has grown in size, it has also evolved in
quality and character: it is no longer simply a means but,
perhaps more importantly, an end in itself—an imperial force in
its own right. Accordingly, the rising militarization of U.S.
foreign policy in recent years is driven not so much by some
general/abstract national interests as it is by the powerful
special interests that are vested in the military capital, that
is, war industries and war–related businesses.
The
Magnitude of U.S. Military Spending
Even without the costs of the wars in Iraq
and Afghanistan, which are fast surpassing half a trillion
dollars, U.S. military spending is now the largest item in the
federal budget. Officially, it is the second highest item after
Social Security payments. But Social Security is a
self-financing trust fund. So, in reality, military spending is
the highest budget item.
The Pentagon budget for the current fiscal
year (2007) is about $456 billion. President Bush’s proposed
increase of 10% for next year will raise this figure to over
half a trillion dollars, that is, $501.6 billion for fiscal year
2008. A proposed supplemental appropriation to pay for the wars
in Afghanistan and Iraq “brings proposed military spending for
FY 2008 to $647.2 billion, the highest level of military
spending since the end of World War II—higher than Vietnam,
higher than Korea, higher than the peak of the Reagan
buildup.”[1]
Using official budget figures, William D.
Hartung, Senior Fellow at the World Policy Institute in New
York, provides a number of helpful comparisons:
- Proposed U.S. military spending for FY
2008 is larger than military spending by all of the other
nations in the world combined.
- At $141.7 billion, this year's
proposed spending on the Iraq war is larger than the
military budgets of China and Russia combined. Total U.S.
military spending for FY2008 is roughly ten times the
military budget of the second largest military spending
country in the world, China.
- Proposed U.S. military spending is
larger than the combined gross domestic products (GDP) of
all 47 countries in sub-Saharan Africa.
- The FY 2008 military budget proposal
is more than 30 times higher than all spending on State
Department operations and non-military foreign aid combined.
- The FY 2008 military budget is over
120 times higher than the roughly $5 billion per year the
U.S. government spends on combating global warming.
- The FY 2008 military spending
represents 58 cents out of every dollar spent by the U.S.
government on discretionary programs: education, health,
housing assistance, international affairs, natural resources
and environment, justice, veterans’ benefits, science and
space, transportation, training/employment and social
services, economic development, and several more items.[2]
Although the official military budget
already eats up the lion’s share of the public money (crowding
out vital domestic needs), it nonetheless grossly understates
the true magnitude of military spending. The real national
defense budget, according to Robert Higgs of the Independent
Institute, is nearly twice as much as the official budget. The
reason for this understatement is that the official Department
of Defense budget excludes not only the cost of wars in Iraq and
Afghanistan, but also a number of other major cost items.[3]
These disguised cost items include budgets
for the Coast Guard and the Department of Homeland Security;
nuclear weapons research and development, testing, and storage
(placed in the Energy budget); veterans programs (in the
Veteran’s Administration budget); most military retiree payments
(in the Treasury budget); foreign military aid in the form of
weapons grants for allies (in the State Department budget);
interest payments on money borrowed to fund military programs in
past years (in the Treasury budget); sales and property taxes at
military bases (in local government budgets); and the hidden
expenses of tax-free food, housing, and combat pay allowances.
After adding these camouflaged and
misplaced expenses to the official Department of Defense budget,
Higgs concludes: “I propose that in considering future defense
budgetary costs, a well-founded rule of thumb is to take the
Pentagon's (always well publicized) basic budget total and
double it. You may overstate the truth, but if so, you'll not do
so by much.”[4]
Escalation of the Pentagon Budget and the Rising Fortunes of Its
Contractors
The Bush administration’s escalation of war
and military spending has been a boon for Pentagon contractors.
That the fortunes of Pentagon contractors should rise in tandem
with the rise of military spending is not surprising. What is
surprising, however, is the fact that these profiteers of war
and militarism have also played a critical role in creating the
necessary conditions for war profiteering, that is, in
instigating the escalation of the recent wars of choice and the
concomitant boom of military spending.[5]
Giant arms manufacturers such as Lockheed
Martin, Boeing, and Northrop Grumman have been the main
beneficiaries of the Pentagon’s spending bonanza. This is
clearly reflected in the continuing rise of the value of their
shares in the stock market: “Shares of U.S. defense companies,
which have nearly trebled since the beginning of the occupation
of Iraq, show no signs of slowing down. . . . The feeling that
makers of ships, planes and weapons are just getting into their
stride has driven shares of leading Pentagon contractors
Lockheed Martin Corp., Northrop Grumman Corp., and General
Dynamics Corp. to all-time highs.”[6]
Like its manufacturing contractors, the
Pentagon’s fast-growing service contractors have equally been
making fortunes by virtue of its tendency to shower private
contractors with tax-payers’ money. These services are not
limited to the relatively simple or routine tasks and
responsibilities such food and sanitation services. More
importantly, they include “contracts for services that are
highly sophisticated [and] strategic in nature,” such as the
contracting of security services to corporate private armies, or
modern day mercenaries. The rapid growth of the Pentagon’s
service contracting is reflected (among other indicators) in
these statistics: “In 1984, almost two-thirds of the contracting
budget went for products rather than services. . . . By fiscal
year 2003, 56 percent of Defense Department contracts paid for
services rather than goods.”[7]
The spoils of war and the
devastation in Iraq have been so attractive that an extremely
large number of war profiteers have set up shop in that country
in order to participate in the booty: “There are about
100,000 government contractors operating in Iraq, not counting
subcontractors, a total that is approaching the size of the U.S.
military force there, according to the military's first census
of the growing population of civilians operating in the
battlefield,” reported The Washington Post in its 5
December 2006 issue.
The rise in the Pentagon contracting is, of
course, a reflection of an overall policy and philosophy of
outsourcing and privatizing that has become fashionable ever
since President Reagan arrived in the White House in 1980.
Reporting on some of the effects of this policy, Scott Shane and
Ron Nixon of the New York Times recently wrote: “Without
a public debate or formal policy decision, contractors have
become a virtual fourth branch of government. On the rise for
decades, spending on federal contracts has soared during the
Bush administration, to about $400 billion last year from $207
billion in 2000, fueled by the war in Iraq, domestic security
and Hurricane Katrina, but also by a philosophy that encourages
outsourcing almost everything government does.”[8]
Redistributive Militarism: Escalation of Military Spending
Redistributes Income from Bottom to Top
But while the Pentagon contractors and
other beneficiaries of war dividends are showered with public
money, low- and middle-income Americans are squeezed out of
economic or subsistence resources in order to make up for the
resulting budgetary shortfalls. For example, as the official
Pentagon budget for 2008 fiscal year is projected to rise by
more than 10 percent, or nearly $50 billion, “a total of 141
government programs will be eliminated or sharply reduced” to
pay for the increase. These would include cuts in housing
assistance for low-income seniors by 25 percent, home
heating/energy assistance to low-income people by
18 percent, funding for community development
grants by 12.7 percent, and grants for education and employment
training by 8 percent.[9]
Combined with redistributive militarism and
generous tax cuts for the wealthy, these cuts have further
exacerbated the ominously growing income inequality that started
under President Reagan. Ever since Reagan arrived in the White
House in 1980, opponents of non-military public spending have
been using an insidious strategy to cut social spending, to
reverse the New Deal and other social safety net programs, and
to redistribute national/public resources in favor of the
wealthy. That cynical strategy consists of a combination of
drastic increases in military spending coupled with equally
drastic tax cuts for the wealthy. As this combination creates
large budget deficits, it then forces cuts in non-military
public spending (along with borrowing) to fill the gaps thus
created.
For example, at the same time that
President Bush is planning to raise military spending by $50
billion for the next fiscal year, he is also proposing to make
his affluent-targeted tax cuts permanent at a cost of $1.6
trillion over 10 years, or an average yearly cut of $160
billion. Simultaneously, “funding for domestic discretionary
programs would be cut a total of $114 billion” in order to pay
for these handouts to the rich. The targeted discretionary
programs to be cut include over 140 programs that provide
support for the basic needs of low- and middle-income families
such as elementary and secondary education, job training,
environmental protection, veterans’ health care, medical
research, Meals on Wheels, child care and HeadStart, low-income
home energy assistance, and many more.[10]
According to the Urban Institute–Brookings
Institution Tax Policy Center, "if the
President's tax cuts are made permanent, households in the top 1
percent of the population (currently those with incomes over
$400,000) will receive tax cuts averaging $67,000 a year by
2012. . . . The tax cuts for those with incomes of
over $1 million a year would average $162,000 a year by
2012.”[11]
Official macroeconomic figures show that,
over the past five decades or so, government spending (at the
federal, state and local levels) as a percentage of gross
national product (GNP) has remained fairly steady—at about 20
percent. Given this nearly constant share of the public sector
of national output/income, it is not surprising that increases
in military spending have almost always been accompanied or
followed by compensating decreases in non-military public
spending, and vice versa.
For example, when by virtue of FDR’s New
Deal reforms and LBJ’s metaphorical War on Poverty, the share of
non-military government spending rose significantly the share of
military spending declined accordingly. From the mid 1950s to
the mid 1970s, the share of non-military government spending of
GNP rose from 9.2 to 14.3 percent, an increase of 5.1 percent.
During that time period, the share of military spending of GNP
declined from 10.1 to 5.8 percent, a decline of 4.3 percent.[12]
That trend was reversed when President
Reagan took office in 1980. In the early 1980s, as President
Reagan drastically increased military spending, he also just as
drastically lowered tax rates on higher incomes. The resulting
large budget deficits were then paid for by more than a decade
of steady cuts on non-military spending.
Likewise, the administration of President
George W. Bush has been pursuing a similarly sinister fiscal
policy of cutting non-military public spending in order to pay
for the skyrocketing military spending and the generous tax cuts
for the affluent.
Interestingly (though not surprisingly),
changes in income inequality have mirrored changes in government
spending priorities, as reflected in the fiscal policies of
different administrations. Thus, when the share of non-military
public spending rose relative to that of military spending from
the mid 1950 to the mid 1970s, and the taxation system or policy
remained relatively more progressive compared to what it is
today, income inequality declined accordingly.
But as President Reagan reversed that
fiscal policy by raising the share of military spending relative
to non-military public spending and cutting taxes for the
wealthy, income inequality also rose considerably. As Reagan’s
twin policies of drastic increases in military spending and
equally sweeping tax cuts for the rich were somewhat tempered in
the 1990s, growth in income inequality slowed down accordingly.
In the 2000s, however, the ominous trends that were left off by
President Reagan have been picked up by President George W.
Bush: increasing military spending, decreasing taxes for the
rich, and (thereby) exacerbating income inequality (see Figure
1).
Figure 1: Income Inequality in
the U.S. (Gini Index), 1913-2004
Source: Doug Henwood, Left
Business Observer, No. 114 (December 2006), p. 1
Leaving small, short-term fluctuations
aside, Figure 1 shows two major peaks and a trough of the
long-term picture of income inequality in the United States. The
first peak was reached during the turbulent years of the Great
Depression (1929–1933). But it soon began to decline with the
implementation of the New Deal reforms in the mid 1930s. The
ensuing decline continued almost unabated until 1968, at which
time we note the lowest level of inequality.
After 1968, the improving trend in
inequality changed course. But the reversal was not very
perceptible until the early 1980s, after which time it began to
accelerate—by virtue (or vice) of Reaganomics. Although the
deterioration that was thus set in motion by the rise of
neoliberalism and supply-side economics somewhat slowed down in
the 1990s, it has once again gathered steam under President
George W. Bush, and is fast approaching the peak of the Great
Depression.
It is worth noting that even at its lowest
level of 1968, income inequality was still quite lopsided: the
richest 20 percent of households made as much as ten times more
than the poorest 20 percent. But, as Doug Henwood of the Left
Business Observer points out, “that looks almost Swedish
next to today’s ratio of fifteen times.”[13]
The following are some specific statistics
of how redistributive militarism and supply-side fiscal policies
have exacerbated income inequality since the late 1970s and
early 1980s—making after-tax income gaps wider than pre-tax
ones. According to recently released data by the
Congressional Budget Office (CBO), since 1979 income
gains among high-income households have dwarfed those of middle-
and low-income households. Specifically:
- The average after-tax income of the
top one percent of the population nearly tripled, rising
from $314,000 to nearly $868,000—for a total increase of
$554,000, or 176 percent. (Figures are adjusted by CBO for
inflation.)
- By contrast, the average after-tax
income of the middle fifth of the population rose a
relatively modest 21 percent, or $8,500, reaching $48,400 in
2004.
- The average after-tax income of the
poorest fifth of the population rose just 6 percent, or
$800, during this period, reaching $14,700 in 2004.[14]
Legislation enacted since 2001 has
provided taxpayers with about $1 trillion in tax cuts over the
past six years. These large tax reductions have made the
distribution of after-tax income more unequal by further
concentrating income at the top of the income range. According
to the Urban Institute–Brookings Institution Tax Policy Center,
as a result of the tax cuts enacted since 2001:
- In 2006, households in the bottom
fifth of the income spectrum received tax cuts (averaging
$20) that raised their after-tax incomes by an average of
0.3 percent.
- Households in the middle fifth of the
income spectrum received tax cuts (averaging $740) that
raised their after-tax incomes an average of 2.5 percent.
- The top one percent of households
received tax cuts in 2006 (averaging $44,200) that increased
their after-tax income by an average of 5.4 percent.
- Households with incomes exceeding $1
million received an average tax cut of $118,000 in 2006,
which represented an increase of 6.0 percent in their
after-tax income.[15]
Concluding Remarks: External Wars as Reflections of Domestic
Fights over National Resources
Close scrutiny of the Pentagon budget shows
that, ever since the election of Ronald Reagan as president in
1980, opponents of social spending have successfully used
military spending as a regulatory mechanism to cut non-military
public spending, to reverse the New Deal and other social safety
net programs, and to redistribute national/public resources in
favor of the wealthy.
Close examination of the dynamics of
redistributive militarism also helps explain why powerful
beneficiaries of the Pentagon budget prefer war and military
spending to peace and non-military public spending: military
spending benefits the wealthy whereas the benefits of
non-military public spending would spread to wider social
strata. It further helps explain why beneficiaries of war
dividends frequently invent new enemies and new “threats to our
national interests” in order to justify continued escalation of
military spending.
Viewed in this light, militaristic
tendencies to war abroad can be seen largely as reflections of
the metaphorical domestic fights over allocation of public
finance at home, of a subtle or insidious strategy to
redistribute national resources from the bottom to the top.
Despite the critical role of redistributive
militarism, or of the Pentagon budget, as a major driving force
to war, most opponents of war have paid only scant attention to
this crucial force behind the recent U.S. wars of choice. The
reason for this oversight is probably due to the fact that most
critics of war continue to view U.S. military force as simply or
primarily a means to achieve certain imperialist ends, instead
of having become an end in itself.
Yet, as the U.S. military establishment has
grown in size, it has also evolved in quality and character: it
is no longer simply a means but, perhaps more importantly, an
end in itself, an imperial power in its own right, or to put it
differently, it is a case of the tail wagging the dog—a
phenomenon that the late President Eisenhower so presciently
warned against.
Accordingly, rising militarization of U.S.
foreign policy in recent years is driven not so much by some
general/abstract national interests, or by the interests of Big
Oil and other non-military transnational corporations (as most
traditional theories of imperialism continue to argue), as it is
by powerful special interests that are vested in the war
industry and related war-induced businesses that need an
atmosphere of war and militarism in order to justify their
lion’s share of the public money.
Preservation, justification, and expansion
of the military–industrial colossus, especially of the armaments
industry and other Pentagon contractors, have become critical
big business objectives in themselves. They have, indeed, become
powerful driving forces behind the new, parasitic U.S. military
imperialism. I call this new imperialism parasitic
because its military adventures abroad are often prompted not so
much by a desire to expand the empire’s wealth beyond the
existing levels, as did the imperial powers of the past, but by
a desire to appropriate the lion’s share of the existing wealth
and treasure for the military establishment, especially for the
war-profiteering contractors. In addition to being parasitic,
the new U.S. military imperialism can also be called dual
imperialism because not only does it exploit defenseless peoples
and their resources abroad but also the overwhelming majority of
U.S. citizens and their resources at home. (I shall further
elaborate on the historically unique characteristics of the
Parasitic, dual U.S. military imperialism in another
article.)
Ismael Hossein-zadeh is an economics professor at
Drake University, Des Moines, Iowa. This article draws upon his
recently published book,
The Political Economy of U.S. Militarism (Palgrave-Macmillan
Publishers)
Notes
[1] William D. Hartung, “Bush Military
Budget Highest Since WW II,” Common Dreams (10 February
2007), <http://www.commondreams.org/views07/0210-26.htm>.
[2] Ibid.
[3] Robert Higgs, “The Defense Budget
Is Bigger Than You Think,” antiwar.com (25 January 2004):
<http://www.antiwar.com/orig2/higgs012504.html>.
[4] Ibid.
[5] Ismael Hossein-zadeh, “Why the US
is Not Leaving Iraq,” <http://www.cbpa.drake.edu/hossein%2Dzadeh/papers/papers.htm>.
[6] Bill Rigby, “Defense stocks may
jump higher with big profits,” Reuter (12 April 2006),
<http://www.boston.com/business/articles/2006/04/12/defense_stocks_may_jump_higher_with_big_profits/>.
[7] The Center for Public Integrity,
“Outsourcing the Pentagon” (29 September 2004), <http://www.publicintegrity.org/pns/report.aspx?aid=385>.
[8] Scott Shane and Ron Nixon, “In
Washington, Contractors Take On Biggest Role Ever,” The New
York Times (4 February 2007), <http://www.nytimes.com/2007/02/04/washington/04contract.html>.
[9] Faiz Shakir et al., Center for
American Progress Action Fund, “The Progress Report” (6 February
2007), <http://www.americanprogressaction.org/progressreport/2007/02/deep_hock.html>.
[10] Robert Greenstein, “DESPITE THE
RHETORIC, BUDGET WOULD MAKE NATION’S FISCAL PROBLEMS WORSE AND
FURTHER WIDEN INEQUALITY,” Center for Budget and Policy
Priorities (6 February 2007), <http://www.cbpp.org/2-5-07bud.htm>.
[11] Ibid.
[12] Richard Du Boff, “What Military
Spending Really Costs,” Challenge 32 (September/October
1989), pp. 4–10.
[13] Doug Henwood, Left Business
Observer, No. 114 (31 December 2006), p. 4.
[14] Congressional Budget Office,
Historical Effective Federal Tax Rates: 1979 to 2004, December
2006; as reported by Center on Budget and Policy Priorities,
http://www.cbpp.org/1-23-07inc.htm>.
[15] See Tax Policy Center tables
T06-0273 and T06-0279 at <www.taxpolicycenter.org>.
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