Red Ink (9 page)

That would have worked well if not for the baby boomers, the huge generation born between 1946 and 1964 that has begun to retire. The basic problem is actuarial: there won’t be enough money coming into Social Security at current tax levels to pay benefits that have been promised, particularly once the baby boomers stop paying tax into the system and start claiming benefits.
The number of taxpaying workers for every Social Security beneficiary has gone from 5.1 in 1960 to 2.9 today, and is projected to fall to 2.1 by 2029. In 2010, for the first time since the early 1980s, Social Security spent more in benefits than it collected in taxes, relying on the interest on its holdings of Treasury bonds to fill the gap. That math will hold for a while, but somewhere around 2036, the trust fund will be empty:
if nothing is done before then, incoming tax revenues will cover only about 75 percent of the promised benefits.

Changes to Social Security are politically delicate because the program touches so many people.
Nearly 55 million people,
one out of every six Americans, were receiving Social Security benefits at the end of 2011, many more female than male because women live longer.
Most who draw benefits are retired workers, but about 30 percent are disabled or are children, spouses, or, in a small number of cases, parents of workers who died. The average benefit for a retiree is $1,228.60 a month, or $14,750 a year. Those who had lower wages get less and those who had higher wages get more. Warren Buffett gets a Social Security check.
But nearly half of Americans sixty-five or older would be below the poverty line if not for Social Security, and a quarter of the elderly get 90 percent of their income from the program.

One of them is Martha Soderberg, age seventy-three, who lives in Middlebury, Vermont, relying almost entirely on the $947.60 she gets each month from Social Security. Soderberg, widowed forty years ago and divorced from her second husband, worked about a decade as a nursery school teacher and then ran an inn with her second husband, who got the property in their divorce. She never thought much about saving for retirement, she says. She does own her house—the mortgage paid off with money she inherited from her mother—and has about $25,000 in mutual funds that her first husband left her. But other than that, her only income is the Social Security checks she has been getting since she turned sixty-two, and a little money she makes on the side selling handmade sweaters and doll clothes.

Soderberg isn’t a complainer. “
I feel like I’m getting by,” she
says. But that’s only because of Social Security. What would she do without it? “One would presume that my two boys or my three sisters would keep me from going to the poorhouse,” she answers. She obviously is no fan of cutting Social Security benefits for today’s retirees—nor is anyone who proposes money-saving changes to Social Security talking about touching the already-retired—but she does read the newspaper headlines with more than a little frustration: “I do wish the government could do a better job of minding their accounts. We poor people have to.”

By any yardstick, the Pentagon budget is huge. Last year’s was equal to the value of all the goods and services produced in the economy of Indonesia, the fourth most populous country on Earth. The $700 billion total was 30 percent higher, adjusted for inflation, than the Cold War peak hit during Ronald Reagan’s presidency. About $150 billon of that went for Iraq and Afghanistan, a sum that will wane as the troops come home. But even the rest of the defense budget—the peacetime budget known to insiders as “the base”—is higher than at any time since World War II. The central question now is how much the defense budget should be cut.

Leon Panetta was eager to cut the defense budget to reduce the deficit when he was chairman of the House Budget
Committee and White House budget director. As defense secretary, he’s not quite as enthusiastic. To meet congressionally set spending caps, the Obama administration did propose a base defense budget for fiscal 2013 that is smaller than fiscal 2012’s, the first such time it has done so, cutting $487 billion over ten years from its previous projections.

But Panetta was fiercely resisting an additional across-the-board cut that would be triggered in January 2013 if Congress and the president fail to agree on an alternative to reduce future deficits. “
[A]fter 10 years of these cuts,” Panetta wrote to Congress, “we would have the smallest ground force since 1940, the smallest number of ships since 1915 and the smallest
Air Force in history.”
Skeptics were quick to note that the navy already has the fewest ships since 1916, that the types of ships now and then are quite different, that counting ships is hardly a measure of military might, that today’s navy is larger than the next thirteen combined, and that across-the-board spending cuts would leave the Pentagon with as much money, adjusted for inflation, as it had in 2007, when there were few complaints about money for defense.

Panetta’s cry is widely seen as a bargaining stance: the defense budget almost surely will be cut more in any deficit-reduction compromising, forcing the Pentagon to pare its long wish list. “
We do not have and probably never will have enough money to buy all the things we could effectively use,” military strategist Bernard Brodie said—in 1959. It’s still true.

The bulk of the Pentagon’s budget goes for three big items: personnel, operations and maintenance, and buying weapons. A close look at a couple of choices illuminates where the money goes, just how much this stuff costs, and why cutting the defense budget is so contentious.

Some of the decisions are too complex for ordinary civilians to understand. Others can be stated simply, such as: How many big aircraft carriers does the navy need to keep America safe? The price tag on these ships is staggering. The navy estimates each aircraft carrier costs in excess of $11 billion, more than Medicare spends annually on knee, hip, and shoulder joint replacements for nearly seven hundred thousand elderly.
Aircraft carriers are expensive even in death: it costs about
$2 billion to decommission a carrier, including removing and storing two nuclear reactors.

The navy now has eleven big carriers, the oldest launched fifty years ago. The current plan is to replace one every five years with a new one—bigger, better, and much more expensive. The existing Nimitz class carriers are the largest warships in the world.
The navy calls them “4.5 acres of mobile, sovereign U.S. territory.”
The new carriers will be about one-fifth of a mile long, capable of launching seventy-five aircraft from a flight deck almost as large as a football field. Partly because shipbuilding creates so many jobs and partly because aircraft carriers are such a symbol of military might, Congress, by law, requires the navy to maintain eleven carriers. It has, however, okayed a temporary plan to sail only ten carriers between the retirement of USS
Enterprise
in 2013 and the commissioning of the first of the new ones, USS
Gerald R. Ford
, in late 2015.

The more carriers, of course, the greater the navy’s global reach and the greater the nation’s capacity to send aircraft anywhere, even when no conveniently located nation is willing to offer a land base. The nagging question is this: Are aircraft carriers obsolete? Pearl Harbor, where so many U.S. planes were destroyed on the tarmac, demonstrated the strategic value of aircraft carriers, but that was sixty years ago. Today, the Chinese—now seen as the biggest potential maritime threat—are developing missiles that could render the modern carrier as vulnerable as the battleships at Pearl Harbor were.

“
The need to project power across the oceans will never
go away,” then defense secretary Robert Gates said in a 2010 speech. “But consider the massive over-match the U.S. already enjoys. Consider, too, the growing anti-ship capabilities of adversaries. Do we really need eleven carrier strike groups for another thirty years when no other country has more than one?” Some naval strategists suggest smaller, more flexible, amphibious ships carrying unmanned aircraft will be more valuable.

One money-saving option would be to retire an existing carrier ahead of time, reducing the carrier fleet to ten. Decommissioning rather than refueling the twenty-year-old USS
George Washington
in 2016 would save $7 billion over ten years, the CBO estimates, if the navy also cut its workforce by the 5,600 sailors who now man the ship.
Obama reportedly rejected this option during internal budget negotiations. “
The president feels strongly that, if we’re going to have a presence in the Pacific, cutting a carrier would undercut the message,” Panetta said, adding that savings elsewhere in the navy budget made room for the carrier. But when Congress eyes further cuts in the defense budget, as it is likely to do at some point, the need for an eleventh carrier will be reexamined.

The Pentagon is more than an armada, though. It’s also among the world’s largest employers, with all that implies.
In May 2010, Gates marked the sixty-fifth anniversary of the Allied victory in Europe with a speech at the Dwight D. Eisenhower Presidential Library in Abilene, Kansas. He spoke not about General Eisenhower’s battlefield victories but about President Eisenhower’s frustrations with the defense budget,
which Gates clearly shared. Some of their concerns were similar. Both were frustrated at the military’s insatiable appetite for new weapons. Some of their concerns were different. Eisenhower complained that it took the army fifty years to get rid of horses. Gates complained, “Health care costs are eating the Defense Department alive.” Eisenhower would have been stunned.

When Gates spoke, the Defense Department was spending as much on health care—about $50 billion—
as on the war in Iraq. The tab has risen since; in 2011 it came to $54 billion.
Health care consumes about 10 percent of the defense budget (excluding the costs of Iraq and Afghanistan). One big reason: Tricare, the military health insurance program created in 1995, is significantly more generous than insurance offered to other employees. Yet, every attempt by the White House or Pentagon to curb the benefits, Gates said, “
meets with a furious response from the Congress and veterans groups. The proposals routinely die an ignominious death on Capitol Hill”—even though none of the changes would affect active-duty military or wounded warriors in the care of the Veterans Administration’s health system.

Why does Tricare survive unscathed? Mostly because of the enormous political power of veterans’ groups. “
They’ve always been very strong, and when you’ve been in ten years of war, the veterans get that much more leverage,” Panetta said recently. The rising cost of wages, health insurance, and retirement—“if it keeps growing on the path that it’s on now”—will
“eat away at our ability to provide the training, the equipment, and all the other things that are basic to our defense,” he said.

Few outsiders appreciate how generous Tricare is. About 15 percent of enlisted men and women and 50 percent of officers stay in the military the twenty years needed to qualify for health insurance after they “retire,” often in their forties. The annual premium was set at $460 a year per family in 1995, and for those who signed up before October 1, 2011, it hasn’t changed since. For personnel who enrolled after that, the premium has been boosted—to a still-bargain price of $520. For similar coverage, federal civilian workers pay around $5,000 a year. “
Try to change … that, and you get ‘You’re not a patriot,’ ” says Alan Simpson, the retired Republican senator who cochaired a deficit-reduction panel with Erskine Bowles.
Obama’s latest budget, though, proposes significant premium increases over the next five years, bigger ones for those with bigger pensions.

The health plan is so generous that most of those who retire from the military and take other jobs turn down their new employers’ insurance because Tricare is a much better deal. Among them is Francis Brady, a retired marine lieutenant colonel in his early fifties who was earning six figures at the consulting firm Booz Allen when he was interviewed by the
New York Times
in 2010. Tricare, he said, is “
so cheap compared to what Booz Allen has.… [It’s] phenomenal.” So it’s no surprise that a growing share of military retirees and their
families are signing up for the government coverage instead of the insurance offered by their new employers.

Later, when military retirees reach age sixty-five and become eligible for Medicare, a program called Tricare for Life picks up the tab for insurance to cover things that Medicare doesn’t. Other Americans pay around $2,100 a year for such policies. Tricare for Life “is
costing us $11 billion a year in the defense budget … basically enough to buy a new [aircraft] carrier every year,” says Todd Harrison, a budget analyst at the Center for Strategic and Budgetary Assessments, a defense think tank.

Much of what Americans think of as “the government” is the remaining 18 percent of federal spending that Congress appropriates annually for a hodgepodge of domestic programs. This money, $566 billion last year, goes for salaries of everyone from the president to the cooks in federal prisons. It aids inner-city schools in Chicago, subsidizes housing for the poor in Omaha, inspects meatpacking plants in Chino, California, and operates air-traffic control towers outside Atlanta. Most of what can be considered an investment in future productivity or economic growth falls in this bucket: bridges, broadband networks, research
at the National Institutes of Health, prekindergarten classes for poor kids, and on and on. This is called “non-defense
discretionary
spending” because it’s subject to annual congressional votes, unlike “mandatory” Social Security or Medicare benefits. In recent years, it has been swollen by Obama’s fiscal stimulus. Last year, Congress passed a law that sets spending for the next ten years, yet another attempt to tie its hands and keep increases on these expenditures below the rate of inflation over time. While it’s easy to argue that somewhere in this half trillion dollars a year are examples of government excess, this new austerity inevitably will limit funding for programs valued by someone, no matter if they have huge profiles and big budgets (the National Aeronautics and Space Administration) or are virtually unknown (the National Dam Safety Program).