[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



               BUDGETING FOR AMERICA'S NATIONAL SECURITY

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, JULY 7, 2011

                               __________

                           Serial No. 112-11

                               __________

           Printed for the use of the Committee on the Budget









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                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey            CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri               LLOYD DOGGETT, Texas
TOM COLE, Oklahoma                   EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California           JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah                 BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana          MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma             TIM RYAN, Ohio
DIANE BLACK, Tennessee               DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin            GWEN MOORE, Wisconsin
BILL FLORES, Texas                   KATHY CASTOR, Florida
MICK MULVANEY, South Carolina        HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas                PAUL TONKO, New York
TODD C. YOUNG, Indiana               KAREN BASS, California
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia

                           Professional Staff

                     Austin Smythe, Staff Director
                Thomas S. Kahn, Minority Staff Director







                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, July 7, 2011.....................     1

    Hon. Paul Ryan, Chairman, Committee on the Budget............     1
        Prepared statement of....................................     2
        Additional submission:
            Prepared statement of Hon. Peter T. King, Chairman, 
              Committee on Homeland Security.....................    62
    Hon. Chris Van Hollen, ranking minority member, Committee on 
      the Budget.................................................     3
        Prepared statement of....................................     5
    David E. Mosher, Assistant Director, National Security, 
      Congressional Budget Office (CBO)..........................     6
        Prepared statement of....................................     8
    Hon. Jim Talent, distinguished fellow, the Heritage 
      Foundation, former U.S. Senator from the State of Missouri.     8
        Prepared statement of....................................    11
    Dr. Gordon Adams, professor of international relations, 
      School of International Service, American University, and 
      distinguished fellow, Project on Budgeting for Foreign 
      Affairs and Defense, Stimson Center........................    18
        Prepared statement of....................................    21

 
                        BUDGETING FOR AMERICA'S
                           NATIONAL SECURITY

                              ----------                              


                         THURSDAY, JULY 7, 2011

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in room 
210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of 
the Committee] presiding.
    Present: Representatives Ryan, Garrett, Calvert, Akin, 
McClintock, Stutzman, Lankford, Ribble, Flores, Mulvaney, 
Huelskamp, Young, Amash, Woodall, Van Hollen, Schwartz, Kaptur, 
Doggett, Blumenauer, Yarmuth, Ryan of Ohio, Wasserman Schultz, 
Moore, Castor, and Tonko.
    Chairman Ryan. Welcome to the reason everybody came here 
today. Today's hearing on the strategic choices we face in 
budgeting for our national security. I want to thank my 
colleague Mr. Van Hollen for requesting this hearing. We may 
differ over the appropriate level of defense spending, but we 
stand united in our commitment to America's security and a 
strategy-based debate when it comes to funding our military. 
Indiscriminate cuts in defense spending that are budget-driven, 
and not strategy-driven, are dangerous to Americans here at 
home and to America's interest in the world. Former Defense 
Secretary Gates put it quite well when he said, ``That is math 
not strategy.''
    This Committee has examined, in depth over the last six 
months--and has advanced solutions to address--the fiscal 
challenges that stifle job creation today, threaten the 
economic security of American families and jeopardize our 
national security commitments, as well.
    Our fiscal crisis is above all a spending crisis driven by 
the growth of our major entitlement programs: Social Security, 
Medicare, and Medicaid--critical programs that help provide 
health and retirement security for millions of Americans. In 
1970, these programs consumed about 20 percent of the federal 
budget. These autopilot spending programs now consume about 40 
percent of the federal budget.
    Over the same period, defense spending has shrunk as a 
share of the federal budget from about 39 percent to 19 
percent, even as we conduct an ambitious global war on 
terrorism. Clearly, defense spending is not driving our 
unsustainable fiscal path. There is, of course, considerable 
waste and inefficiencies at the Pentagon, which Secretary Gates 
did a great job of identifying. The House-passed budget builds 
upon this effort, devoting $100 billion of the savings the 
higher priority defense programs and $78 billion of savings to 
deficit reduction.
    We must work together to address the real drivers of our 
debt. We must advance solutions like those included in the 
House passed budget that strengthen our social safety net, save 
our critical health and retirement security programs, lift our 
crushing burden of debt, and spur economic growth and job 
creation.
    America remains the greatest force for human freedom the 
world has ever seen. Lifting millions out of poverty and 
liberating millions from the shackles of terror and tyranny. 
Our leadership in the world is threatened by a fiscal crisis 
from within, and the stakes could not be any higher. It is 
critical for our national security and our economic security 
that we advance solutions that match the magnitude of the 
challenges before us. I thank our witnesses for joining us 
today and for bringing considerable expertise to help us frame 
the strategic choices we face. We have David Mosher, did I 
pronounce it right is it Mosher? David Mosher serves as 
Assistant Director for CBO on National Security. We will also 
hear from a former colleague of ours here in the House, former 
Senator Jim Talent, who is now a distinguished fellow at the 
Heritage Foundation and a member of the bipartisan panel that 
provided an independent assessment of the most recent QDR. 
Welcome back Jim, it is good to see you. We also have Dr. 
Gordon Adams, a distinguished fellow at the Stimson Center and 
a former national security budget official during the Clinton 
Administration.
    The final point I want to make is this--a sentiment that I 
know Mr. Van Hollen shares: The men and women in uniform are 
not mere line items on our federal budget. Our budget debates 
must never lose sight of our solemn obligation in Congress to 
provide our troops fighting overseas with the resources they 
need to successfully complete their mission, and our commitment 
to them upon their return. We owe a debt of gratitude to our 
military families that have taken untold sacrifices for our 
security and our freedoms we hold dear. I want to thank the 
witnesses, and I now yield to Mr. Van Hollen for his opening 
statement.
    [The prepared statement of Chairman Paul Ryan follows:]

            Prepared Statement of Hon. Paul Ryan, Chairman,
                        Committee on the Budget

    Welcome all to today's hearing on the strategic choices we face in 
budgeting for our national security.
    I want to thank my colleague Mr. Van Hollen for requesting this 
hearing. We may differ over the appropriate level of defense spending, 
but we stand united in our commitment to America's security and a 
strategy-based debate when it comes to funding our military.
    Indiscriminate cuts in defense spending that are budget-driven and 
not strategy-driven are dangerous to Americans here at home and to 
America's interests in the world. Former Defense Secretary Gates put it 
well: ``that's math, not strategy.''
    This Committee has examined in depth over the last six months--and 
advanced solutions to address--the fiscal challenges that stifle job 
creation today, threaten the economic security of American families, 
and jeopardize our national security commitments as well.
    Our fiscal crisis is above all a spending crisis driven by the 
growth of our major entitlement programs: Social Security, Medicare, 
and Medicaid--critical programs that help provide health and retirement 
security for millions of Americans.
    In 1970, these programs consumed about 20 percent of the federal 
budget. These autopilot spending programs now consume 40 percent of the 
budget.
    Over the same period, defense spending has shrunk as a share of the 
federal budget from about 39 percent to 19 percent--even as we conduct 
an ambitious global war on terrorism.
    Clearly, defense spending is not driving our unsustainable fiscal 
path. There is, of course, considerable waste and inefficiencies at the 
Pentagon--which Secretary Gates did a great job of identifying.
    The House-passed budget builds upon this effort--devoting $100 
billion of savings to higher priority defense programs and $78 billion 
to deficit reduction.
    We must work together to address the real drivers of our debt. We 
must advance solutions, like those included in the House-passed 
budget--that strengthen our social safety net, save our critical health 
and retirement security programs, lift our crushing burden of debt, and 
spur economic growth and job creation.
    America remains the greatest force for human freedom the world has 
ever seen, lifting millions out of poverty and liberating millions from 
the shackles of terror and tyranny. Our leadership in the world is 
threatened by a fiscal crisis within--and the stakes could not be 
higher.
    It is critical for our national security and our economic security 
that we advance solutions that match the magnitude of the challenges 
before us.
    I thank our witnesses for joining us today, and for bringing 
considerable expertise to help us frame the strategic choices we face.
    David Mosher serves as the assistant director of the Congressional 
Budget Office for national security.
    We'll also hear from a former colleague of ours here in the House, 
former Senator Jim Talent who is now a distinguished fellow at the 
Heritage Foundation, and a member of the bipartisan panel that provided 
an independent assessment of the most recent Quadrennial Defense 
Review. Welcome back Jim.
    We also welcome Dr. Gordon Adams, a distinguished fellow at the 
Stimson Center, and a former national security budget official during 
the Clinton Administration.
    A final point worth keeping in mind today--a sentiment that I know 
Mr. Van Hollen shares: the men and women in uniform are not mere line-
items on the federal budget.
    Our budget debates must never lose sight of our solemn obligation 
in Congress to provide our troops fighting overseas with the resources 
they need to successfully complete their mission, and our commitment to 
them upon their return.
    We owe a debt of gratitude to the military families that make 
untold sacrifices for our security and our freedoms we hold dear.
    Thank you to our witnesses--and to all for joining in today's 
discussion, and with that, I yield to the Ranking Member, Mr. Van 
Hollen.

    Mr. Van Hollen. Thank you. Thank you Mr. Chairman, and 
thank you for holding these hearings. As you indicated we 
requested a few months ago a hearing on the role of defense 
spending, security spending within the overall budget as well 
as a hearing on tax expenditures at some point; and I thank you 
for holding the hearing today. I hope we can do the other one. 
And I want to join the Chairman in welcoming all our 
distinguished witnesses hear today. The Congressional Budget 
Office just released a new updated report on the Pentagon's 
current plans that concludes historical cost growth will 
continue to put upward pressure on the budget at a time of 
large deficits, and we will hear more about that today. As 
Republicans and Democrats come together to work out a plan to 
get deficits and debt under control, we must get a better 
understanding of all the elements of the budget that continue 
to put pressure on the budget's bottom line and what options we 
should explore to get the most out of every tax dollar spent. 
There is no higher priority than providing for the security of 
our country and I join the chairman in expressing our gratitude 
to the men and women in the military who help keep our country 
strong. We all want a military that is second to none, but 
during this difficult fiscal period we have to be much smarter 
and more efficient in how we go about providing for one. The 
economy, the source of our ability to provide for a strong 
security apparatus, is at risk because of large deficits and 
rising debt over time. Admiral Mike Mullen, the Chairman of the 
Joint Chiefs of Staff, warned the policymakers of this growing 
risk when he stated, ``Our national debt is our biggest 
national security threat.''
    Over the last decade the base Pentagon budget has nearly 
doubled, and spending at the Pentagon is now at its highest 
level since World War II. The United States currently outspends 
the world's second largest military, China, by a factor of 7-1. 
Roughly $700 billion to $100 billion, and from 2001 to 2010, 
security spending including Pentagon, State Department, VA, and 
Department of Homeland Security, excluding emergencies and war 
costs, grew on average 1.5 percent per year more than non-
security spending. Over the last decade the Pentagon was able 
to avoid making difficult choices because of this permissive 
funding environment. This is not my opinion, it is the opinion 
of the highest ranking officer in our military, Admiral Mullen 
said, and again I quote, ``With the increasing defense budget, 
which is almost double, it has not forced us to make the hard 
trades. It has not forced us to prioritize. It has not forced 
us to do the analysis.''
    We can no longer afford to spend tax payer resources 
without ensuring every dollar is efficiently and effectively 
invested. There is now bipartisan consensus that all spending, 
including spending at the Pentagon, must be on the table as we 
figure out how to get our finances back on track. Many 
Republicans have expressed their support for reviewing defense 
spending to find savings, including Governor Haley Barbour, 
former Majority Leader Dick Armey, former Senator and three-
term Chairman of the Senate Budget Committee Pete Domenici, and 
many others. Even in this year's Defense Appropriations Bill, 
Chairman of the Appropriations Committee, Hal Rogers, and 
Appropriations Defense Subcommittee, Bill Young, made the case 
that Defense cannot be excluded from this debate. Others have 
proposed far deeper cuts to security spending.
    The President's Fiscal Commission, co-chaired by Democrat 
Erskine Bowles, and Republican former Senator Alan Simpson, 
proposed more than a trillion dollars in cuts to security 
programs over 10 years, including illustrative examples of how 
to save $100 billion per year at the Pentagon as part of a 
balanced plan to reduce the deficit. A majority of the 
commissioners voted to approve that plan by vote of 11 to 7, 
including a number of Republican Senators.
    Even in this committee, where agreement is hard to come by, 
the notion that all spending, including spending at the 
Pentagon, needs to be on the table was agreed to by a majority 
of the members this spring in Sense of the House language. So 
where do we look for savings? We should look at all aspects of 
the budget, but the very first item to examine should be 
inefficiencies and wasteful practices.
    After years of trying, the DOD is still the one agency, the 
one agency that cannot pass a standard audit. It does not keep 
track of the number of service contractors even though it 
spends roughly $200 billion a year on such contracts. Major 
weapon acquisition programs have experienced hundreds of 
billions of dollars in cost overruns in recent years. The GAO 
recently estimated cost growth of these weapon systems totaling 
$300 billion, and the GAO has identified a number of 
persistent, high-risk management areas at the Department that 
need improving. There are also seemingly endless examples of 
stories of abusive contracting practices.
    Last Friday, Leon Panetta was sworn in as Secretary of 
Defense, someone who is well prepared to deal with our fiscal 
challenge because of his vast security and budget experience. 
He released a message on Friday saying, ``A choice between 
fiscal discipline and a strong national defense is a false 
choice.'' I agree with the incoming Secretary of Defense in 
that regard. We can make both tough decisions to put spending 
at the Pentagon on a more affordable path and still maintain a 
military that is second to none. Again, Mr. Chairman, thank you 
for holding this hearing. The Defense Department budget alone 
makes up approximately one-fifth of the entire federal budget, 
and more than half of all discretionary spending. So I think 
this hearing is an important exercise in our oversight 
responsibilities. Again, thank you.
    [The prepared statement of Chris Van Hollen follows:]

 Prepared Statement of Hon. Chris Van Hollen, Ranking Minority Member,
                        Committee on the Budget

    I would like to thank the Chairman for holding this hearing. I 
requested a couple of months ago that we hold a hearing on Pentagon 
spending and tax expenditures and I welcome this opportunity today. I 
would also like to join you in welcoming our witnesses. Mr. Mosher, 
Senator Talent, and Dr. Adams, thank you for coming today to share your 
views and analysis on the Pentagon's budget and budgeting for our 
national security in general.
    The Congressional Budget Office just released a new updated report 
on the Pentagon's current plans that concludes historical cost growth 
will continue to put upward pressure on the budget at a time of large 
deficits. This report is very timely. As Republicans and Democrats come 
together to work out a plan to get deficits and debt under control, we 
must get a better understanding of all the elements of the budget that 
continue to put pressure on the budget's bottom line and what options 
we should explore to get the most out of every tax dollar spent.
    There is no higher priority than providing for the security of our 
country. We all want a strong military that is second to none, but 
during this difficult fiscal period we have to be much smarter and 
efficient in how we go about providing for one. The economy--the source 
of our ability to provide for a strong security apparatus--is at risk 
because of large deficits and rising debt. Admiral Mike Mullen, the 
Chairman of the Joint Chiefs of Staff, warned policy makers of this 
growing risk when he stated, `Our national debt is our biggest national 
security threat.'
    Over the last decade, the `base' Pentagon budget has nearly 
doubled, and spending at the Pentagon is now at its highest level since 
World War II. The U.S. currently outspends the world's second largest 
military--China--by a factor of seven to one (roughly $700 billion to 
$100 billion). And from 2001 to 2010, security spending (including 
funding for the Pentagon, State Department, VA, and Department of 
Homeland Security), excluding emergencies and war costs, grew on 
average 1.5 percent more per year than non-security spending.
    Over the last decade the Pentagon was able to avoid making 
difficult choices because of this permissive funding environment. This 
isn't my opinion; it is the opinion of the highest ranking officer in 
our military. Admiral Mullen said, ``* * * with the increasing defense 
budget, which is almost double, it hasn't forced us to make the hard 
trades. It hasn't forced us to prioritize. It hasn't forced us to do 
the analysis.''
    We can no longer afford to spend taxpayer resources without 
ensuring every dollar is efficiently and effectively invested. There is 
now bipartisan consensus that all spending, including spending at the 
Pentagon, must be on the table as we figure out how to get our finances 
back on track. Many Republicans have expressed their support for 
reviewing defense spending to find savings, including Governor Haley 
Barbour, former Majority Leader of the House Dick Army, and Former-
Senator and three-term Chairman of the Senate Budget Committee, Pete 
Domenici.
    Appropriations Committee Chairman Hal Rogers and Defense 
Appropriations Subcommittee Chairman Bill Young also made the case that 
defense cannot be excluded from this debate when they brought a defense 
appropriations bill to the House floor that, while still increasing 
defense funding over this year's level, contained $9 billion in cuts 
below the President's February budget request for 2012.
    Others have proposed far deeper cuts to security spending. The 
President's Fiscal Commission, co-chaired by Democrat Erskine Bowles 
and Republican Former-Senator Alan Simpson, proposed more than $1 
trillion in cuts to security programs over ten years, including 
illustrative examples of how to save up to $100 billion per year at the 
Pentagon, as part of a balanced plan to tame deficits. A majority of 
Commissioners voted to approve that plan by a vote of 11 to 7.
    Even in this committee, where agreement is hard to come by, the 
notion that all spending, including spending at the Pentagon, needs to 
be on the table was agreed to by a majority of its members this spring. 
The Committee voted to include `Sense of the House' language to that 
effect in the 2012 budget resolution.
    So, where do we look for savings? While we should examine all 
aspects of the Pentagon budget, the very first item to examine should 
be inefficiencies and wasteful practices. After years of trying, DoD 
still can't pass a standard audit. It doesn't keep track of the number 
of service contractors it has even though it spends roughly $200 
billion per year on such contracts. Major weapons acquisition programs 
have experienced hundreds of billions in cost overruns in recent years; 
the Government Accountability Office (GAO) recently estimated cost 
growth of these weapons systems totaling $300 billion. GAO has 
identified a number of persistent high-risk management areas at the 
Department that need improving. There are also seemingly endless 
stories of abusive contracting practices. The most recent example is 
one uncovered by a government report showing that Boeing overcharged 
DoD for a number of spare parts it was providing. One spare part was 
marked up 177,000 percent above its cost.
    Last Friday, Leon Panetta was sworn in as Secretary of Defense, 
someone who is well-prepared to deal with our fiscal challenges because 
of his vast security and budget experience. He released a message on 
Friday saying that a choice between fiscal discipline and a strong 
national defense is a false choice. I believe he is correct. We can 
make both the tough decisions to put spending at the Pentagon on a more 
affordable path and still maintain a military that is second to none.
    Chairman Ryan, thank you for holding this hearing on the security 
budget. The defense budget alone makes up approximately one fifth of 
the entire Federal budget and more than half of all discretionary 
spending. It is important that we exercise as much oversight as we can 
over such a large piece of the budget.
    Again, I thank our witnesses for coming today and I look forward to 
hearing their testimony.

    Chairman Ryan. Thank you. Thank you, Mr. Van Hollen. We 
will begin with our testimony. I asked our witnesses if they 
could keep it to five minutes and then they will be able expand 
on all of their points in the Q and A. We will start with Mr. 
Mosher, and Senator Talent, then Dr. Adams. Mr. Mosher the 
floor is yours, and put the mic right up to your faces.

  STATEMENTS OF DAVID E. MOSHER, ASSISTANT DIRECTOR, NATIONAL 
 SECURITY, CBO; JIM TALENT, DISTINGUISHED FELLOW, THE HERITAGE 
FOUNDATION; AND GORDON ADAMS, DISTINGUISHED FELLOW, THE STIMSON 
                             CENTER

  STATEMENT OF DAVID E. MOSHER, ASSISTANT DIRECTOR, NATIONAL 
                         SECURITY, CBO

    Mr. Mosher. Thank you Mr. Chairman. Thank you Congressman 
Van Hollen. Members of the Committee, I appreciate the 
opportunity to appear before you today to discuss CBO's recent 
analysis of the long term implications of DOD's budget request. 
DOD's plans are outlined in the Future Years Defense Program, 
or FYDP, for 2012-2016 period and in documents it is published 
on its long-term procurement plans. Because decisions made in 
the near-term can have long-term consequences for the defense 
budget, CBO projected the costs of DOD's plans for its base 
budget, that is, DOD's budget without war costs, from 2012 
through 2030. CBO has projected what it would cost to execute 
those plans using cost factors that are consistent with DOD's 
recent experience. CBO's detailed analysis was released last 
week and can be found on our website, but I want to emphasize 
that our analysis is intended to highlight the cost of 
executing the current plan. It is not an analysis of 
affordability or the requirements for defense; nor is it a 
prediction of likely actions taken by lawmakers.
    CBO's analysis yielded the following conclusions. DOD 
anticipates that the base budget will grow about six percent in 
real terms over the next five years from $536 billion in 2011 
to $569 billion in 2016 in order to execute its plans. I am 
using 2012 dollars in my presentation today. CBO on the other 
hand projects that that funding would have to grow about 11 
percent in real terms over that same period or almost double 
what DOD estimates.
    In 2030, CBO projects that DOD would need a budget of $642 
billion to execute its current plans, an increase of 20 percent 
in real terms over what you guys appropriated in 2011. The 
primary cause of growth through 2030 would be the rising costs 
for operation and maintenance plus those for military 
personnel. In particular, CBO projects that there will be 
significant increases in the cost for military health care, 
military and civilian compensation, and various other Operation 
and Maintenance activities. If you could put Slide 1 up please.
    As you can see from the top line in Slide 1, that is 
projected on the screen, it is Figure 3 in the prepared 
statement. The O and M line, which is that top line, grows 
rapidly over the FYDP and beyond. In fact it is the largest 
growing, the fastest growing of all those--a total of 42 
percent growth from 2011 to 2030. The military personnel 
account, which is the next line down from the top, provides pay 
and most benefits to our soldiers, grows at about 26 percent 
over that same period.
    CBO projects that together those two lines would consume 
about 71 percent of the budget in 2030, up from 63 percent of 
the budget today if DOD does not change the size of its force 
structure beyond 2016. In other words, the same force will 
continue to cost more and more every year. The growth in those 
two accounts represents the largest budget challenge to DOD in 
future years, particularly if defense budgets are cut below 
2012 levels. I just want to point out, by contrast the 
procurement account would grow rapidly through 2019 but then 
start to fall thereafter. Growth in the Operations and 
Maintenance account is driven in part by rapid growth in the 
military health system. More than nine million active duty, 
reserve, and retired military personnel and their families are 
eligible for this benefit. CBO projects that the cost for the 
military health system will nearly double in real terms from 
2011 to 2030. By far the fastest growing major component in 
DOD's budget.
    Compared to levels in 2000, costs will quadruple by 2030. 
If you could show the next slide please. The figure on the 
screen, which is Figure 4 in my prepared statement, illustrates 
the growth in CBO's projection. Rapid growth would occur in all 
categories of costs in the military health system except the 
cost of military personnel, which is that bottom category, 
which will grow much more slowly. The growth rates for military 
health systems have been significantly higher than the rates in 
the national health care costs over the past five years, and 
CBO projects those differences will persist. For example, DOD 
spending per user, for purchased and direct care, grew at three 
times the national rate from 2006 to 2010.
    An important contributor to that increase are the accrual 
payments for TRICARE for Life, a benefit that Congress added in 
2002. You can see the top category in the figure there in light 
blue. TRICARE for Life wraps around Medicare, significantly 
reducing out-of-pocket costs for beneficiaries who are eligible 
for both programs. They are generally military retirees and 
their spouses after reaching age 65. This leaves DOD with few 
tools to control these beneficiaries' utilization of services. 
It also has the effect of increasing Medicare spending, as 
well. Once again, I want to thank you for the opportunity to 
appear before you and discuss our analysis, and I look forward 
to your questions.
    [The prepared statement of David E. Mosher may be accessed 
at the following Internet address:]

     http://cbo.gov/ftpdocs/121xx/doc12162/07-07-FYDP_Testimony.pdf

    Mr. Garrett [presiding]. I thank the gentleman, 
Congressman.

         STATEMENT OF JIM TALENT, DISTINGUISHED FELLOW,
                    THE HERITAGE FOUNDATION

    Mr. Talent. Thank you Mr. Chairman. I remember the 
frequency with which I would read full statements when I was on 
your side of the table. So I am going to recap what I have to 
say and then make one observation, and then I would be happy to 
accept your questions and respond to them. In recapping my 
statement, let me give a little bit of a historical overview. I 
think that is the best way to do it. I came to the House in 
1993, which coincided with the beginning of the post-Cold War 
policies and the Peace Dividend that the government took at the 
time. The force structure many of you know this, was cut by 
approximately 40 percent across all three services. Procurement 
was at the time cut by even more than the force structure was 
cut. They took a procurement holiday. As I pointed out in my 
statement, there was one year when they did not buy a fighter 
aircraft for the Air Force; the reason for that was the 
assumption that we would not have to put boots on the ground in 
the future, the assumption that for at least 10 years there 
would be no existential threat to the United States. These 
assumptions, by the way, continued through, mostly, through the 
1990's, and the assumption that by modernizing the platforms 
and modernizing the force it would make each service member 
less vulnerable and more lethal and more capable so that we 
would be able to accept a smaller force and fewer platforms.
    Then modernization was cut in the 1990s. At the same time, 
as Bob Gates has pointed out, we found out that history had not 
ended; it had just thawed out with a vengeance and deployments 
went up. Every president in the post-war era has sustained the 
commitments made by his predecessor and added to them, and that 
includes this president, who has sustained his predecessor's 
commitment, increased what we did in Afghanistan, and has now 
announced a responsibility to protect. And I do not intend to 
be critical of that; it just shows how busy our forces have 
been protecting American interests around the world.
    Then 9/11 occurred, spending on defense did go up but it 
was largely eaten up by costs that were generated by the 
decisions in the previous decade. Operation and Maintenance has 
gone up because when you increase deployments and you cut the 
number of platforms and you do not modernize, maintenance goes 
up because you are trying to keep legacy inventory and 
operation. Compensation has gone up. I think that was 
justified, but it was also necessary because when you put this 
kind of stress on a volunteer force you have to pay people 
more.
    Well, the upshot is that chickens are now coming home to 
roost. We have kicked the modernization can down the road as 
far as we can and now we have a force which is losing crucial 
capabilities. The Navy is the smallest it has been since 1916. 
The Air Force is the smallest and the oldest it has been since 
the inception of the service. The Army's missed several 
generations of modernization. The Army is not ready outside of 
the forces that are committed into combat. The tip of the spear 
is sharp, but they get that way by cannibalizing the rest of 
the spear. So if the balloon goes up some place else we are 
going to send in troops that do not have enough training and do 
not have the equipment, even the legacy equipment that they 
need, and that is why the panel which you all created which was 
consisted of people appointed by the leaders of Congress and 
the administration, the Perry-Hadley Panel, and I mention this 
extensively in my remark, concluded that a train wreck is 
coming in the area of force capability because we have to 
modernize the force. Now we have a modernization crisis and we 
have to increase the size of the Navy.
    That, in sum, is my remarks. I do want to add one 
observation; I know that the budget times are difficult. It is 
an unusually difficult time and maybe unusually difficult to do 
what could have been done any time in the last 15 years to put 
in the funds that are needed to modernize and recapitalize the 
force and increase the size of the Navy, but at least recognize 
that there is a problem. Do not, because you cannot solve it 
right now, try and pretend that there is no problem. There is a 
problem. If you recognize that there is a problem it gives a 
sense of urgency to doing the things that you can do.
    I mention in my written statement, for example, it would be 
a very good thing if we could increase foreign military sales 
because the defense industrial base is very fragile now. Well, 
we can carry, we can support that industrial base and carry 
some of these programs if we have more sales, but it is very 
difficult because we have an archaic system of approving these 
things and it takes a long time. You guys have probably studied 
it. Well if you accept the fact that there is a problem and we 
need to do something about it, you will approach that kind of a 
reform with a much greater sense of urgency.
    CBO talks about the need to reduce the costs of military 
retiree health care. I would agree with that and I think it is 
possible to do that without threatening the quality of that 
health care. We need to meet with the retirement community and 
their leaders, and we need to work something out. There is an 
urgency in doing that if you recognize that we are losing 
capabilities: air superiority, amphib capabilities, the ability 
of the Army to move quickly and move efficiently and 
effectively when it needs to. There is a bunch of things that 
you can do.
    The other thing is if you recognize that there is a problem 
you can be opportunistic when the time comes. I have written in 
other forms about the stimulus bill. It was a decision to 
stimulate the economy by spending about $800 billion. I did not 
agree with it as a matter of fiscal policy but when I heard the 
government was going to do it, I thought, well now here is an 
opportunity to address some of these needs. For about a third 
of that money set aside judiciously over five to 10 years, 
combined with the procurement reforms that we need, we have 
could have taken care of this problem. Even if procurement and 
modernization had gotten the same percentage of that money that 
the DOD gets in any given fiscal year, we could have done a 
lot. We could have kept the F-22 line open; we needed to keep 
that line open as a hedge against the fact that the Russians 
and the Chinese are still building fifth generation air-to-air 
superiority fighters. We could have bought F-18s as a hedge 
against the fact that you may not buy out the F-35 requirement. 
We could have gone to production of a higher rate production of 
Virginia Class submarine earlier. We could have had the money 
available to reset the Army after these conflicts, and there 
would have been money left over. And I think had this body been 
conscious as a body, had we made the decision to recognize and 
confront the fact that there was a problem, there is a very 
good chance that that money would have been there. It would 
have been spent in American industries, high paying American 
jobs, which was the logic behind the bill. But instead there 
was no money spent on modernization or procurement, and I think 
that is because we did not confront the problem.
    I think there would have been a greater sense of urgency 
last year about passing a defense appropriations bill. I am not 
going to comment on that greatly but you all know, the failure 
to pass the bill and funding it through CRs did damage to the 
way the department operates, and that was not even a money 
issue. And I think there would be a greater sense of urgency 
now, at least, to try and do what Secretary Gates has said for 
several years needs to be done, which is to pass budgets that 
have modest real increases in the defense budget, along with 
the savings that we are trying to get, so that we can at least 
stop the bleeding until the budget situation is resolved and we 
have more funds to address the modernization crisis.
    I will conclude by saying what I said in the statement. 
Yes, there is a price to strength. There is an upfront cost to 
it. There is a price to weakness too, and we have been living 
with it. The reason that Operation and Maintenance budget is 
going up the way it is going up is they have to take care of 
legacy equipment that is breaking down. Some of it has mission 
capable rates of 50 percent. So you are shoveling money in 
without getting the value because we have not recognized the 
problem and we have not committed ourselves to a solution.
    I understand the situation that you are in. You have a very 
difficult job in the best of times, and these times it is 
extremely difficult, at least confront the problem, and at 
least approach with a sense of urgency the things that we can 
do. Thank you.
    [The prepared statement of Jim Talent follows:]

   Prepared Statement of Hon. Jim Talent, Distinguished Fellow, the 
  Heritage Foundation, Former U.S. Senator From the State of Missouri

    Mr. Chairman, I am former Senator Jim Talent, from Missouri. I 
served in the United States Senate from 2002-2007 and I was privileged 
to be a member of the House from 1993-2001. During my years of service, 
I was a member of the Armed Services Committees in both bodies. I am 
currently a Distinguished Fellow at The Heritage Foundation focusing on 
defense and national security, though the views I will express today 
are my own.
    I want you to know that I greatly value the work of this Committee 
and I honor and appreciate the work of every Member here. In the best 
of times you must make difficult choices; in these times your choices 
are particularly unpalatable.
    You have asked me to testify regarding ``Budgeting for America's 
National Security.'' I will focus my remarks on the condition of 
America's military today and its likely condition in the future given 
current trends.
    Mr. Chairman, when I was on your side of the table, I always 
appreciated witnesses who stated their views plainly and with candor, 
because finding a solution requires first and foremost being willing to 
recognize the extent of the problem. In that spirit I will give you my 
conclusion about the state of America's military. Despite the dedicated 
efforts of our servicemen and women--who are among the finest who ever 
served any country--America's military strength is declining, both 
absolutely and relative to the dangers which confront us. The rate of 
decline is growing, and will soon reach a point--if the point has not 
been reached already--where our military leaders will not be able to 
honestly guarantee America's security within an acceptable margin of 
risk.
    Allow me to briefly survey some history to explain how the current 
state of affairs came about.
    After the Berlin Wall fell and the Cold War ended, many in 
Washington believed that the United States had entered an indefinite 
period of peace. Because of that, the government took too large of a 
``peace dividend'' out of the defense budget. The size of the military 
was cut by approximately 40-50 per cent across all the services. Then 
in the mid-1990s, the government took what was called a ``procurement 
holiday.'' It reduced modernization budgets, and reduced the rate at 
which it bought ships, planes, helicopters, tanks, and other inventory, 
far more than the size of the force was cut. There was one year, for 
example, when the United States did not purchase a single tactical 
fighter jet for the Air Force.
    Yet as it turned out, the end of the Soviet threat did not bring 
global peace. To paraphrase Secretary Bob Gates, history had not ended; 
it had only been frozen, and in the post-Cold War years it thawed out 
with a vengeance. All the regional, religious and ethnic rivalries that 
had been suppressed beneath the Soviet/American competition came to the 
surface, and the United States used its military to manage the 
resulting conflicts. In the last twenty years, and beginning well 
before the 9/11 terrorist attacks, the American military has deployed 
at a far greater rate than was ever the case during the Cold War. 
America has fought four major regional conflicts--in Bosnia, Kuwait, 
Iraq, and Afghanistan. It is beginning a fifth conflict now, in Libya; 
at this point, no one knows what the extent or duration of that mission 
will be. In addition, the military has engaged in a wide variety of 
other missions--from fighting the drug war, interventions in places 
like Somalia, stopping piracy, and delivering humanitarian aid--most of 
which would have been unthinkable during the Cold War.
    It's the age old lesson our government never seems to learn. 
Ignoring the potential for conflict does not make the conflict go away. 
Failing to prepare for a mission does not make the mission less 
necessary or less likely. In fact, there are some conflicts that are 
more likely precisely to the extent that we do not prepare for them, 
because the purpose of military capability is not just to win wars but 
to deter them.
    Mr. Chairman, this highlights a benefit of military preparedness 
that your Committee cannot score in dollars but which is nevertheless 
very real: the savings from missions that do not happen because 
military power deters conflict from occurring. An excellent example is 
America's presence in the Northwest Pacific. During the first half of 
the 20th century, there were three wars in that region involving 
Russia, China, Japan, and Korea. During the last half of the 20th 
century, there were no wars. That's at least in part because after the 
Korean conflict, America created and sustained equilibrium in the 
region that has prevented conflict and promoted peaceful development. 
That equilibrium has proven beneficial to the United States and to the 
world. That is also why the four American Presidents in the post-Cold 
War era have continued America's presence in Korea. If our footprint 
there were to be eliminated, decreased stability could end up costing 
far more than the burden of maintaining America's presence in the first 
place.
    Here is another relevant example. In the 1990s, the active duty 
Army was cut from 18 to 10 divisions, on the assumption that America 
would not need to commit large numbers of troops on the ground for long 
periods of time. That assumption was driven at least in part by the 
desire to save money rather than by sound national security planning. 
As it turned out, two different Administrations decided--in each case 
with strong support from the Congress--that there was a need for large 
numbers of boots on the ground in Iraq and Afghanistan. Yet because the 
Army had become so small, its rotational base was inadequate, which is 
why the Reserves have been constantly mobilized and so many of our 
troops have had to do four or five tours of combat duty in the Mid-
East. There is at least a substantial chance that if the Army had been 
bigger, America could have surged troops in Iraq and Afghanistan at the 
same time, and shortened one or both of the missions. If so, the 
savings would have dwarfed any savings that were achieved by the 
original cuts--not to mention the lives that would have been saved, the 
reduced stress on our servicemen and women, and the increased 
confidence at home and abroad that would have resulted from a more 
effective operation.
    Here is another point. I'm sure you are all aware that the cost of 
pay and benefits for the military is continuing to increase 
substantially. Now, our servicemen and women deserve every dollar they 
get. But there is no question that because the force was too small to 
support the increased operational tempo of the last twenty years, extra 
money had to be spent for pay, bonuses and benefits in order to protect 
recruitment and retention.
    Mr. Chairman, my point is this. There is unquestionably a cost to 
sustaining military strength, and the Budget Committee must take that 
cost into account. But there is also a price to be paid for weakness; 
it can be very substantial and if the Committee is going to budget 
honestly you must take that into account as well.
    The upshot is that in the last two decades, the combination of 
increased deployment, reduced force structure, and underfunded 
procurement and modernization has caused a decline in America's 
military capability. In the late 1970s, America's military 
``hollowed.'' Now it is stressing and rusting; inventories are aging 
and increasingly out of date technologically. The Navy has fewer ships 
than at any time since 1916. The Air Force inventory is smaller and 
older than at any time since the service came into being in 1947. The 
Army has missed several generations of modernization, and many of its 
soldiers are on their fourth or fifth tour of duty in Iraq or 
Afghanistan. The Reserves have been on constant mobilization and are 
under stress; many vital programs, such as missile defense, have been 
cut; the space architecture is old and needs to be replaced; and in the 
past two years, no fewer than 50 modernization programs have been 
ended.
    In fact, there are very few major modernization programs that are 
still actively underway at the Pentagon. As a result, each of the 
services has pressing needs that are largely unmet:
     The Air Force must replace the fighter inventory, develop 
new cargo and tanker assets, build a new bomber, and increase long-
range strike capability.
     The Navy must increase the number of submarines, sustain 
the number of aircraft carriers, develop a new cruiser, replace the 
aviation inventory on the carrier decks, buy more destroyers, and buy 
out the requirement of new littoral combat vessels.
     The Army must, at minimum, sustain the number of troops at 
current levels as well as modernize and replace its inventory of 
fighting vehicles, and procure a next-generation attack helicopter--all 
supported by a more robust and secure battlefield network.
     The Marines must restore their amphibious landing 
capability and acquire both Harrier and A-10 replacements, while 
allotting sufficient funds to fix and replace equipment worn out from a 
decade of war.
    These programs are not luxuries, but needs. Without them, the 
United States will lose basic capabilities that everyone has come to 
take for granted. For example, if current shipbuilding rates continue, 
the number of American naval vessels will continue to decline and the 
United States will no longer have a global Navy. The Marines have 
already lost considerable amphibious capability and are losing more, 
which means the Marines will no longer be able to storm the beaches. 
They have already lost a considerable portion of their amphibious 
capability. Because of Russian and Chinese advances in fighter 
capability, and the end of the F-22 production line, America's 
traditional air superiority is eroding. According to Lieutenant General 
David Deptula, recently departed Deputy Chief of Staff for Intelligence 
in the U.S. Air Force, ``For the first time, our claim to air supremacy 
is in jeopardy * * * The dominance we've enjoyed in the aerial domain 
is no longer ours for the taking.''
    I said before that American strength is declining not only in 
absolute terms but relative to the risks we are confronting. Time does 
not permit me to survey all the risks confronting the United States, 
but I will offer two observations: about the conflict against terrorism 
and the implications of China's growing power.
    First, for the purposes of this testimony, it's not necessary to 
speculate on the current status of the war against terrorism. What we 
do know is this. Whether the President's drawdown of our troop surge in 
Afghanistan works or not, and whatever else happens there, America is 
going to maintain a substantial presence in country for an indefinite 
period of time. Our troops may well remain in Iraq in some capacity or 
other, and the military is certainly going to continue conducting 
counter terrorism operations around the world on an ongoing basis. 
Moreover, it is at least possible and perhaps probable that America's 
military will have to get more involved in places like Yemen, if not in 
counterinsurgency than in enhanced counterterrorism activities.
    The important thing for your Committee to consider is that whatever 
the exact nature of American operations against Al Qaeda and its 
affiliates, that mission will be substantial, and it is being executed 
by a force the size of which was determined in the 1990s before 
terrorism was considered a major threat. In other words, force 
structure was never adjusted upwards in response to the attacks of 9-
11; the conflict against terrorism is a mission that was added to the 
burdens of a military that was structured without that mission in view.
    Second, Chinese power is surging at a pace that no one anticipated 
when the current force was established. China need not become an enemy, 
and its increasing power should not be viewed as inherently hostile. 
The Chinese are simply recovering from a long period of unusual 
weakness and beginning to assert themselves as a major power. But the 
rise of Chinese power has implications for the United States that no 
Administration can ignore, especially considering the form it is 
taking. There is no doubt whatsoever that China is deliberately 
assembling naval, missile, and air assets for the purpose of acquiring 
the ability to deny the United States access to strategically vital 
parts of the Western Pacific. Whether and under what circumstances they 
might use that capability is an open question, as is the question of 
China's intentions regarding the assertion of its power globally. But 
whatever combination of engagement, diplomacy, and deterrence President 
Obama or future Presidents might use in response to Chinese ambitions, 
the foundation of any successful policy will be confidence in America's 
commitment and leadership, and that will be determined in substantial 
part by the presence and capabilities of America's naval and air power 
in the Pacific--power which is currently in a state of decline.
    Mr. Chairman, I haven't said anything to this point that was not 
said, in much fuller form and with complete documentation, by the 
commission that Congress created last year specifically for the purpose 
of reviewing the condition of America's military and recommending steps 
for the future. I refer to the Independent Panel which examined the 
Quadrennial Defense Review produced by the Pentagon in the spring of 
2010. The Independent Panel was chaired by former Secretary of Defense 
William Perry and former National Security Adviser Stephen Hadley. It 
was thoroughly bipartisan, consisting of twenty members appointed by 
the Obama Administration and the Republican and Democratic leaders of 
the two Houses of Congress. The Panel considered the likely risks 
facing the United States and examined the adequacy of the military to 
respond to those challenges. To that end, the Panel interviewed scores 
of top officials and examined all the relevant material, including 
classified documents. I heartily recommend the report to the Committee 
and will summarize for you today some of the key conclusions that are 
relevant to this hearing. Direct quotes from the report are italicized 
and page numbers are provided for reference.
    The Perry-Hadley Panel unanimously concluded:
    The United States has for most of the last century pursued four 
enduring national security interests. Those objectives include defense 
of the American homeland, assured access to sea, air, space, and 
cyberspace, preservation of a favorable balance of power across Eurasia 
that prevents authoritarian domination of that region, and providing 
for the global ``common good'' through such actions as humanitarian 
aid, development assistance, and disaster relief. (page vii)
    Five key global trends face the nation as it seeks to sustain its 
role as leader of an international system that protects the interests 
outlined above. Those trends include the Radical Islamist extremism and 
the threat of terrorism, the rise of new global great powers in Asia, 
continued struggle for power in the Persian Gulf and the greater Middle 
East, an accelerating global competition for resources, and persistent 
problems from failed and failing states. (page vii)
    These trends are likely to place an increased demand on American 
``hard power.'' (page vii)
    ``There is increased operational tempo for a force that is much 
smaller than it was during the years of the Cold War. In addition, the 
age of major military systems has increased within all the services, 
and that age has been magnified by wear and tear through intensified 
use.'' (page 53)
    [The report] suggests an Army and Marine Corps of the same size as 
today, but suggests the Navy expand substantially * * * Air Force end 
strength * * * may be at about the right level (page 58)
    ``We have long been living off the capital accumulated during the 
equipment investment of 30 years ago. The useful life of that equipment 
is running out, and, as a result, of the inventory is old and in need 
of recapitalization. Because military power is a function of quantity 
as well as quality, numbers do matter. As the force modernizes, we will 
need to replace inventory on at least a one-for-one basis, with an 
upward adjustment in the number of naval vessels and certain air and 
space assets.'' (page 55)
    The Department must fix its acquisitions process to regain 
credibility * * * [producing] real savings, which should be captured 
and applied to the modernization effort. However, those savings will be 
insufficient for comprehensive modernization. ``Meeting the crucial 
requirements of modernization will require a substantial and immediate 
additional investment that is sustained through the long term.'' (page 
61)
    Finally, the Panel issued two warnings that are worth quoting in 
full as the conclusion to this portion of my remarks.
    ``The issues raised in this Report are sufficiently serious that we 
believe an explicit warning is appropriate. The aging of the 
inventories and equipment used by the services, the decline in the size 
of the Navy, escalating personnel entitlements, overhead and 
procurement costs, and the growing stress on the force means that a 
train wreck is coming in the areas of personnel, acquisition and force 
structure.'' (page v)
    ``There is a choice our planners do not have. As the last 20 years 
have shown, America does not have the choice of abandoning a leadership 
role in support of its national interests. Those interests are vital to 
the security of the United States. Failure to anticipate and manage the 
conflicts that threaten those interests--to thoughtfully exploit the 
options we have set forth in support of a purposeful global strategy--
will not make those conflicts go away or make America's interests any 
less important. It will simply lead to an increasingly unstable and 
unfriendly global climate and, eventually, to conflicts America cannot 
ignore, which we must prosecute with limited choices under unfavorable 
circumstances--and with stakes that are higher than anyone would 
like.'' (pages 28-29)
                               next steps
    Mr. Chairman, I am going to recommend a series of steps that can be 
taken, on a bi-partisan basis and even in this extraordinary budget 
climate, to address the problem that I have raised in these remarks and 
that the Perry-Hadley Panel covered so thoroughly in its Report. Before 
I do that, I want to put the issue in context.
    If the government were in anything approaching a typical budget 
year, this would not be that difficult a problem. The first step would 
be for the Department of Defense to work vigorously to reduce the cost 
of major new procurement programs. The Pentagon simply cannot continue 
taking up to 20 years to design and build major new military platforms 
that end up costing billions more than was originally estimated. The 
pace of technological change and the needs of modern warfare make 
procurement reform vital, even apart from the budgetary issues created 
by the current ineffective system.
    Procurement reform would produce substantial savings that could be 
put towards the recapitalization called for in the Perry-Hadley Report. 
I comment more on procurement reform below. Except for the unusually 
difficult budget situation, the next step would be to do what the 
Perry-Hadley Panel explicitly recommended: increase the procurement and 
modernization budgets by an additional amount sufficient to 
recapitalize military inventories over the next five to ten years. The 
sum necessary would be substantial but fully affordable in the short 
term, and as I have already said, failing to spend the necessary 
dollars only increases costs in the long term. In fact, the shortfall 
is as large as it is today because in the past--when there was no 
budget crisis--the government did not spend the smaller sums that would 
have prevented the problem from ever occurring. It always costs more to 
catch up than it does to keep from falling behind.
    To emphasize precisely that point, The Heritage Foundation 
advocated for years that the government adopt as a guideline funding 
the military force structure at a level equal to four percent of 
America's GDP. Heritage believed that over time, and assuming normal 
economic growth, a figure equal to that percentage was approximately 
what was needed to recapitalize and sustain the force. Beyond that, 
however, Heritage wanted to emphasize that no matter what fiscal policy 
Congress adopts, and regardless of your views regarding other budgetary 
needs, America can afford to defend itself. The government may choose 
to spend less than one out of every 25 dollars defending the country, 
but it certainly can spend at least that much. As the Committee is 
aware, the government has often spent much more than 4% of GDP on the 
military in the past, at times when the economy was much smaller and 
less prosperous than it was until the recent economic crisis.
    Again, to put the budgetary issue in context, two years ago, the 
government spent close to 800 billion dollars in an extraordinary 
attempt to stimulate the economy. None of that money was spent on 
recapitalizing the military. It's not my purpose to comment on the 
stimulus bill as a matter of fiscal policy, though my views on that 
subject are easily available to anyone who wants them. But had perhaps 
a third of that money been reserved for and spent judiciously on 
military modernization over the next decade (and assuming the necessary 
procurement reforms had also been implemented) Congress would by that 
decision alone have met the vital needs which the Perry-Hadley Panel 
thoroughly documented. And the money would have been spent on high 
skilled, high paying American jobs in American industry, which was 
supposedly the point of the stimulus bill.
    That was a missed opportunity. Congress should not miss such an 
opportunity again. If I were on the Committee, and regardless of 
whether I was a Republican or Democrat, I would vote to recommend the 
necessary funding to begin implementing the recommendations of the 
Perry-Hadley Panel--even given the current budgetary climate. The 
problem which the Panel report documented must be addressed, and the 
sooner Congress addresses it, the less it will cost in the long run.
    Moreover, funding military modernization is fully consistent with 
finding a solution to the budget crisis. I do not pretend to be as 
expert on budget issues as Members of this Committee. But it does not 
take an expert to see that the core of the problem is a structural 
mismatch between the revenue dedicated to the entitlement programs and 
the growing cost of those programs. One way or another, Congress is 
going to have to resolve that issue. If it does, then a thoughtful plan 
to recapitalize the military over the next decade will be fully 
affordable. If it doesn't, then denying our servicemen and women the 
tools they need to defend us will not prevent the bankruptcy of the 
government. In fact, it will make the budget situation worse, if--as is 
entirely possible--America's growing military weakness causes conflict 
that could have been prevented, increases instability that inhibits 
economic growth, or allows a disaster to be inflicted on the homeland 
or the American economy.
    In short, Mr. Chairman, this government is where it is not because 
of budgetary necessity but because of choices that were voluntarily 
made over the last 20 years. Making the wrong choices over time has 
multiplied problems and narrowed the number of solutions that are 
available. Making the right choices, on the other hand, will gradually 
reduce the challenges we face and create more palatable options for the 
future. The right choice is to meet the government's most basic 
responsibility and fund the military at the level that gives the 
greatest chance for peace and security in the future.
    The current budget climate may make that decision politically or 
practically impossible in the short term. Here are some other steps I 
recommend for the Committee:
                 1. stop the bleeding in the short term
    Stop cutting the President's budget for defense, and--until the 
general budget crisis is resolved--make every effort to meet Secretary 
Gates' goal of a small real annual increase in the defense budget. I 
understand that in this budgetary climate, every aspect of the federal 
budget is ``on the table.'' There undoubtedly are efficiencies that can 
be found in defense spending. When savings are achieved, however, they 
should be invested in the procurement and modernization budgets. Every 
dollar that is used effectively now in those budgets is money that will 
not have to be found later.
    Also, Congress should pass a timely defense appropriations bill 
every year. Last year, Congress failed to pass a FY 2011 defense bill 
and instead funded the Pentagon through Continuing Resolutions that 
lasted well into this calendar year. Apart from the resulting cuts in 
the President's budget, which was already too low, the operational 
restrictions in the Continuing Resolutions caused significant 
disruptions in the Pentagon's contracting process for ongoing programs. 
That caused unnecessary and significant challenges for the Department 
and defense contracting community from which they have not yet 
recovered.
    Third, on a forward going basis, Congress should make every effort 
to set and keep stable funding projections for ongoing programs. Of 
necessity, Congress appropriates on a yearly basis, while the 
Pentagon's major modernization programs last for a number of years. 
Without firm funding projections for the out years which Congress 
commits to keeping, it is impossible for the Department to plan and 
spend the money it is given efficiently. But with such a commitment, it 
would be possible to procure more platforms in an economical way, 
through multi-year programs and other plans to buy larger numbers of 
platforms according to set commitments over time.
       2. procurement reform is necessary both to save money and
                 for the reasons i have outlined above
    But the Committee should be aware that every Secretary of Defense 
in the last 15 years has dedicated himself to procurement reform. 
Congress has passed several bills on the subject, and yet the system is 
at best no better and by most estimations has gotten worse.
    A quote from former Secretary of the Navy John Lehman illustrates 
the problem:
    ``There were about 1,000 people in the Bureau of Ships during World 
War II * * * And they were the ones that mainly ran the shipbuilding 
program--not micromanaged the contractors, but developed and did the 
systems integration and oversaw the program. Through World War II, they 
built on average about a thousand ships per year. That's one ship per 
person.
    Now in my day (in the 1980s), there were 4,000 people in the Bureau 
of Ships, and we averaged 28 ships per year.
    Today we're averaging about 6 to 7 ships per year, and there are 
25,000 people in the equivalent of the Bureau of Ships. That's a whole 
Pentagon load of people in the Bureau of Ships. Now they're scattered 
all over the country in different offices and functions, but the 
numbers are--you can get into lots of quibbles about it--but the 
numbers increased from 1,000 to 4,000 to 25,000 as the numbers of ships 
declined precipitously.
    And so what's the answer? Reform? We have a new budget that will 
add 20,000 additional civil servants to oversee the already-bloated 
layers of bureaucracy that are there today.''
    The Perry-Hadley Report contains a brief but important chapter on 
procurement reform which I strongly recommend to the Committee. The 
Panel noted that the most basic problem was ``fragmentation of 
authority and accountability for performance.'' In other words, the 
processes of procurement have been made so complicated--often in an 
effort to avoid mistakes or ensure oversight--that there is no single 
manager or small group of managers who have the authority to make 
decisions or feel accountable for the progress of programs. Someone 
must be clearly in charge of every procurement program, and must 
clearly have the authority that goes with that responsibility.
    Second, the Panel noted that the Department must insist on no more 
than a 5 to 7 year delivery window for new programs. That means, among 
other things, accepting that a platform as initially delivered may have 
only incrementally improved capabilities which can be further improved 
through evolutionary upgrades over time after the platform has been 
deployed. Successful programs in the past have often gone through 
several upgrades over decades. Such a process is better suited to the 
rapid pace of technological change, and is much easier to manage in an 
efficient way, than trying to achieve every possible desired 
improvement before initial delivery.
    To put it another way, we have to focus on getting more hulls in 
the water, more planes in the sky, and more trucks and fighting 
vehicles on the ground. We have to increase numbers quickly even if it 
means increasing capabilities more incrementally.
    There are a number of other cogent suggestions in the Report. But 
the upshot is that a well trained line management force, with clear 
authority and responsibility, that insists on short timelines with 
reasonable deliverables, is the key to procurement reform. What is not 
needed are huge numbers of new regulations or new managers with 
complicated chains of command. If that is the manner in which 
``reforms'' are instituted, they will increase rather than reduce 
costs.
    It should be noted that one of the reasons program costs have gone 
up is the decline in the defense industrial base. The private sector 
has not been unaware that since the end of the Cold War, the government 
has not placed a high value on procurement and modernization funding. 
That has caused investment to shift away from defense industries and 
remaining firms to consolidate. This is not 1961 anymore; there really 
is no more ``military industrial complex'' or if it exists, it's a lot 
smaller than it used to be. A decade ago, there were six major aircraft 
producers in the United States. Now there are two. Forty years ago 
there were eleven major naval shipyards. Now there are four. For the 
first time in almost a century, America has no manned military or 
civilian aircraft in design.
    Fewer competitors generally means less competition, which puts 
upward pressure on prices. Moreover, it means that the remaining 
industrial base is less flexible and more fragile. Before Congress ends 
programs like the F-22 and shuts down major production lines, it should 
remember that those lines cannot be reconstituted without enormous cost 
and without taking a lot more time than it would have taken in the 
past. So where there is any doubt about whether further procurement of 
an existing platform may be required, every effort should be taken to 
keep the production line going. And in general Congress should consider 
how to protect the remaining defense industrial base, perhaps with 
small investments in crucial capabilities even where the money is not 
available to fund a major program. In this respect, I applaud the HASC 
for its efforts to keep open the Abrams tank line and the Bradley 
fighting vehicle line. Given the significant possibility that Army 
modernization programs will not be funded, keeping those lines open at 
least helps ensure that the industrial base stays intact, that new if 
not modern platforms will be available, and that evolutionary upgrades 
can be considered at some point.
             3. congress can strengthen the industrial base
                  by promoting foreign military sales
    Easing restrictions on sales of select platforms to allies and 
partners will achieve more efficient production rates and offset costs 
born by the American taxpayer as well as help protect the industrial 
base. One problem is archaic International Trade in Arms Regulations 
which are time confusing and confusing. They should and can be reformed 
without sacrificing real national security concerns. In fact, by 
reauthorizing and reforming the old Export Administration Act, Congress 
can strengthen protections against exports to state sponsors of terror 
while applying less stringent standards to more generic kinds of 
exports to friendly countries. Also, more can be done bilaterally to 
encourage defense trade cooperation. As a first step in this process, 
the Senate was correct to approve two treaties that exempted the United 
Kingdom and Australia--two reliable allies--from various restrictions.
    Finally, with regard to personnel costs. Much has been written 
about how Congress has increased benefits to servicemembers, active 
duty and retired, in the last ten years, causing personnel costs to 
grow. That policy was, in general, necessary and right--though it was a 
mistake not to increase the topline to pay for the extra compensation--
because it allowed the volunteer force to mature and play its part in 
carrying out American foreign policy.
    After World War II, the logic of historical events pushed America 
to the forefront of world affairs. American leaders established a 
baseline goal of protecting the homeland and limiting the spread of 
totalitarian domination without precipitating a third World War. There 
have been many mistakes in judgments, operational failures, and periods 
of insensitivity and excess since that goal was established. But the 
baseline strategy has been a success, and because of that the United 
States and the world has experienced a tremendous growth in freedom, 
prosperity, and--relative to the first half of the 20th century--peace. 
Moreover, America achieved its goals while at the same time 
consistently reducing the percentage of its national wealth that was 
devoted to the nation's defense.
    There are a number of tools our government has used to accomplish 
that strategy. I am an advocate for the tools of ``smart power,'' as 
properly defined: diplomacy, international coalitions, engagement, the 
growth of economic and democratic institutions, and effective 
communication about America's values and intentions. But the 
underpinning of all those tools is America's military capability, and 
the underpinning of that is the dedication and competence of the men 
and women who have defended us over the last 60 years.
    Those men and women have made the volunteer military an unqualified 
success. They have accomplished every mission we have given them. They 
deserve to be well compensated. Moreover, the sacrifices they and their 
families make, and the depth and diversity of their skills, has become 
so great that to keep them in the service we must compensate them at a 
level commensurate or greater than what they could earn in the private 
sector.
    So in my view, and without commenting on every specific benefit 
decision, the increase in pay and benefits of the last ten years was 
justified and necessary. But there are three areas where I believe the 
compensation structure should be reformed.
    First, too much of the compensation package is concentrated in the 
post retirement years. I do not begrudge our retired servicemembers 
their pay and benefits, but because the retirement benefits have become 
so generous, the government has made it financially prohibitive for 
many servicemembers to continue in the military once they are eligible 
to retire after 20 years of service. That pressure has become a burden 
on retention. We need these highly skilled servicemembers to stay 
longer in the military, and we need a compensation system that allows 
them to continue their service without feeling like they are doing a 
financial disservice to themselves and their families.
    Second, the cost of health care is becoming a problem, particularly 
for retired servicemembers. I voted for TriCare for life when I was in 
the Congress, and I believe it was right thing to do. But it ought to 
be possible to work with the retiree community to lower the cost of 
that care without sacrificing quality or putting an unfair burden on 
retirees.
    Third, Congress must understand that the cost of military 
compensation comes directly out of the same pool of dollars that pays 
for everything else on which our servicemen and women depend. It is 
politically popular to increase benefits, and as I said the increases 
were justified by the contributions of our military. But increasing 
compensation is irresponsible and self defeating when it means 
sacrificing the training or tools that servicemembers need to 
accomplish their missions at low risk and with minimal loss of life. In 
future, benefits should not be introduced or increased unless Congress 
is also willing to increase the top line defense budget enough to pay 
for it.
                               conclusion
    Mr. Chairman, I want in conclusion to thank you and the Committee 
again for inviting me to testify. The condition of America's military 
is a cause for grave concern. I know that your options to deal with the 
issue are not as robust as they would have been even a few years ago. 
The key at this point is to confront the problem rather than trying to 
avoid it, carefully consider the options that are realistically 
available in the short term, and then choose the right alternatives 
within the universe of what is possible. The good news is that making 
the right decisions now will expand the range of palatable alternatives 
in the future; the inherent resiliency of the volunteer force and the 
people who constitute it may make it possible to recover our strength 
sooner than might reasonably be expected.

    Mr. Garrett. I thank the gentleman. Dr. Adams.

        STATEMENT OF GORDON ADAMS, DISTINGUISHED FELLOW,
                       THE STIMSON CENTER

    Mr. Adams. Thank you very much Mr. Chairman, Ranking Member 
Van Hollen, for whom I am also a constituent. It is a pleasure 
to be here. Thank you very much for asking me to testify today 
and talk about this issue. It is incredibly important work that 
you are doing and I want to try to offer a perspective, perhaps 
slightly different from either one that you have just heard, 
about how we might go about doing that work.
    When I worked at the Office of Management Budget, which I 
did for five years in the 1990s; one of my bosses, who I think 
lurks behind that portrait over there in that corner, I am not 
quite sure because I am at a angle to it, would have been 
Congressman Panetta, who was the Chair of this Committee at the 
time is now the Secretary of Defense. We struggled very hard 
with this issue of the relationship between defense and the 
rest of the federal fisc and the US economy, and in the process 
of doing that struggle in large part because we were 
constrained by the budget rules that were laid down and the 
Budget Enforcement Act of 1990, spent a great deal of time 
negotiating between the Office of Management and Budget, and 
the Budget Committee; the Chairs, the Ranking Members, and the 
Members of the Budget Committee. So I am very conscious of the 
important role that you play. As we head into what Chairman 
Mullen called our most significant national security issue, 
which is dealing with our deficits and our debt, your role is 
going to become ever more important. I appreciate it and I 
understand it.
    Let me reassert then as my first point to summarize my 
testimony that our deficit, our debt, and the economy are our 
most important national security issues. I agree not only with 
Chairman Mullen but with the Simpson-Bowles Commission, with 
the Rivlin-Domenici Commission, and national security is part 
of that issue. All spending contributes to deficits. All 
spending contributes to the borrowing we have to do to fund the 
deficits. All revenue changes contribute to deficits, and to 
the borrowing that has to be done to make up and fund those 
deficits, and that includes national defense. It always has and 
it always will.
    The Congressional Budget Office and further work on their 
data by the Center on Budget and Policy Priorities show that 
over the past 10 years, and stretching out over the next 10 
years, the deficits and the accumulated debt the United States 
has have stemmed largely from three things: the tax cuts of 
2001 and the reduction of revenue, the increase in defense 
spending, and the combination of revenue and spending increases 
that happened as a result of the recession. A much smaller 
proportion of the deficits and the accumulated debt is 
attributable to the one time TARP Bill, and to the stimulus 
package of 2009.
    So defense is part of the problem. All federal spending, 
all federal revenues are part of the problem, and that is why 
for you everything has to be on the table.
    Defense, point number two, is always resource constrained. 
We speak as if we lived in a universe where defense and 
resources are unlinked. One of the major weaknesses of the 
panel in my judgment that Senator Talent served on was that it 
dealt with the world as if there were no resource constraints 
on any part of the federal budget, especially defense. But as 
Bernard Brodie, prominent strategic analyst, said many years 
ago in 1959, ``Strategy wears a dollar sign.'' Resources and 
strategy are always linked; they will always be linked.
    In doubling the defense budget over the past 10 years, as 
Admiral Mullen said and Congressman Van Hollen referred to 
that, ``We have lost our ability to make the hard choices and 
do the trade-offs.'' Well the piper who is playing the piping 
tune now that we have to pay is making those tough choices and 
doing the trade-offs that have not been done for the past 
decade.
    Third point, we are in a build-down. The build-down is 
already underway in defense. It is the fourth defense build-
down that we have done since the end of the Korean War. This is 
not a new experience in American national security history. We 
have built down each time we have ended major involvement in a 
conflict, Korea, Vietnam, the Cold War, and now Afghanistan, 
and Iraq. This build-down is driven by the end of those 
conflicts and by an increasing concern about our deficits and 
our debt.
    We managed a build-down in 1990s. That build-down actually 
began under the George H.W. Bush Administration. The first 
500,000 people who came out of the military force structure 
were taken out by Secretary of Defense Dick Cheney, and 
Chairman of the Joint Chiefs of Staff Colin Powell. We managed 
that build-down through the 1990s, and frankly despite some of 
the issues raised by Senator Talent, it was in fact the best 
managed build-down we have had in American history and left 
behind a dominant global military force; one that took out 
Saddam Hussein like a speed bump in 2003. So it is possible to 
manage a build-down. We have done it before, we can do it 
again.
    Fifth point, in my judgment the $400 billion over 12 years 
the Administration put on the table is best the Defense 
Department is likely to do; it is a minimal. As I say in the 
testimony, we can achieve $400 billion in savings in defense 
over the next 12 years providing the Defense Department with 
growth at the rate of inflation over that same 12 years as 
against the current defense projected baseline.
    The commissions that have been mentioned before in 
introductory remarks, and we did the staffing on defense for 
the Rivlin-Domenici Panel, have proposed more significant 
reductions, $500 billion to $1 trillion, which at $1 trillion 
comes to something like 15 percent of the projected resources 
over the next 10 years. It is possible to do a build-down. We 
agree that if you reach numbers of those magnitudes it is very 
important, as you suggested in your introductory remarks, to 
link it to strategy. And so in the testimony and in work we did 
for Rivlin-Domenici and published in Foreign Affairs in January 
of this year, we have talked about what some of those 
priorities may be, and I hope we get a chance to discuss them 
more in the context of this hearing. Terrorism obviously won, 
and we can talk about how one approaches that. It is not 
predominantly a military issue. Cyber protection is one, also 
not predominantly a military issue. Large steel conventional 
combat, we judge to be relatively unlikely, not likely. The 
rise of China is an issue of serious discussion and serious 
consideration, but not manifestly a threat against which we 
need to throw a significant growth in defense resources. And 
most important perhaps in our view, the counterinsurgency 
mission, the dealing with fragile states using the military 
instrument, expanding the force to cope with that kind of a 
problem, we would be drawing the wrong lessons from Afghanistan 
and Iraq not the right lessons, and I am prepared to talk to 
that proposition.
    So we suggest in the testimony options that involve 
shrinking the American military force, dealing judiciously with 
our procurement vectors in the future, the Army fortunately has 
spent a good deal of money through supplementals over the past 
three or four years to help get ahead of the ball on its own 
reset problem and to deal seriously with the problem of defense 
infrastructure. When we have more than 500,000 American combat 
forces, or I should say uniformed forces, which are not in 
combat and do not deploy according to the Defense Business 
Board, we have a serious problem of tooth-to-tail; and that 
tail needs to be dealt with in a serious way.
    Final point, and I will close with this, it is important to 
point out that even if you took all of these steps the United 
States retains today and would retain 10 years out a globally 
dominant military. We sometimes lose this point in talking 
about problems that the military has. We have the only military 
in the world capable of flying anywhere in the globe. We have 
the only military in the world capable of sailing anywhere in 
the world. We have the only military in the world capable of 
deploying ground forces anywhere in the world. We have the only 
military with global intelligence, communications, 
transportation, and logistics. The only military, no other 
country in the world even comes close. Ten years out in a well 
managed build-down we would have exactly the same thing. Thank 
you very much.
    [The prepared statement of Gordon Adams follows:]

  Prepared Statement of Dr. Gordon Adams, Professor of International 
 Relations, School of International Service, American University, and 
  Distinguished Fellow, Project on Budgeting for Foreign Affairs and 
                        Defense, Stimson Center

    Chairman Ryan, Ranking Member Van Hollen, and Members of the 
Committee, thank you for the invitation to appear today on the critical 
and timely subject of our national security budget.
    As you search for avenues to deal with our continuing fiscal 
crisis, it is important to keep in mind that a solution can only be 
found if everything is on the table, including national security 
spending. The underlying theme of my testimony today is that our 
defense budget is not only part of our fiscal dilemma; it can and 
should be part of the solution as well. We are at a critical juncture 
in defense planning and budgeting at which international conditions 
make it possible and timely to rethink how we use our military as part 
of our toolkit for international engagement.
    The Defense Department has not faced strategic or budgetary 
discipline for more than a decade. Our military budget has more than 
doubled in the past decade, consuming 55% of our entire discretionary 
costs. Last year it reaching a level in constant dollars unprecedented 
since the end of World War II. And the missions we have asked the 
military to perform have grown virtually without end.
    Such discipline is now both possible and necessary. In the long 
term, strategy and resources--human and fiscal--have always been 
linked. As Bernard Brodie, one of America's great strategic thinkers, 
put it more than fifty years ago: ``Strategy wears a dollar sign.'' \1\
---------------------------------------------------------------------------
    \1\ Bernard Brodie. Strategy in the Missile Age. (Princeton: 
Princeton University Press, 1959). p. 358.
---------------------------------------------------------------------------
    A disciplined approach to both will produce budgetary savings and 
ensure that our military capabilities and global leadership remain 
powerful and well focused on core missions. This means making choices 
linked to a realistic assessment of risks, defining missions better 
connected to a more coherent strategy, and doing so within constrained 
resources.
    My testimony draws on work we have done at the Stimson Center's 
project on budgeting for foreign affairs and defense, including 
consulting with the Bipartisan Policy Center's Rivlin-Domenici Debt 
Panel, as well as my more than thirty years experience in policy 
research and government service in the area of national security 
planning and budgeting.\2\ It is based on several key principles:
---------------------------------------------------------------------------
    \2\ Stimson project work is publicly available at (http://
www.stimson.org/programs/budgeting-for-foreign-affairs-and-defense/) 
and blog (http://thewillandthewallet.org/). See also Gordon Adams and 
Cindy Williams. Buying National Security: How America Plans and Pays 
for its Global Role and Safety at Home. (New York: Routledge, 2010).
---------------------------------------------------------------------------
     Our central national security crisis today is our looming 
federal debt and annual deficits. All ingredients of national spending 
and revenues must be on the table for our deficits to be brought under 
control and our debt to be stabilized. A budgetary solution is 
achievable only if it is balanced, with every element of federal 
spending and revenues playing a part.
     A defense ``build down'' is already under way. Defense 
budgets are primed to decline, as they generally do at the end of 
combat deployments and with changes in the international environment, 
and will do so gradually over the next decade. In my judgment, the 
starting point for budgetary discipline is the FY2011 appropriation for 
the base defense budget--$529 billion. The slope of this build down 
will be gradual, implemented over a number of years, and it should be 
linked to a coherent set of strategic, mission, and program choices.
     Much deeper reductions than those proposed by the 
administration are possible, likely, and can be executed with little or 
no risk to American national security if properly planned. The twelve-
year, $400 billion reduction that President Obama announced in April is 
a very small step in that direction; it could be accomplished while 
continuing to provide growth with inflation to the defense budget. 
Deeper cuts are possible and likely. The Simpson-Bowles Fiscal 
Commission, the Bipartisan Policy Center's Rivlin-Domenici Panel, and 
the Sustainable Defense Task Force have all endorsed reductions between 
$500 billion and a trillion dollars over the next ten years. Even those 
can be accomplished successfully, representing something like 6-13% of 
the currently projected defense resources.
     The key to a successful build down will be linking 
strategic and mission discipline to this need for fiscal discipline. 
This means setting mission priorities for the military. In a Foreign 
Affairs article earlier this year, we recommended focusing on combating 
Al Qaeda's organization and cybersecurity as the most critical missions 
and divesting from counter-insurgency and nation-building.\3\
---------------------------------------------------------------------------
    \3\ Gordon Adams and Matthew Leatherman. ``A Leaner and Meaner 
Defense: How to Cut the Pentagon's Budget while Improving Its 
Performance,'' Foreign Affairs (Jan/Feb 2011).
---------------------------------------------------------------------------
     The strategic, mission, and fiscal discipline I recommend 
creates little risk for our national security. Indeed, priority-setting 
might enhance both our security and our global leadership. Even with 
such reductions, the US military would continue to be decades ahead of 
any other military in capacity and technology, with the only capacity 
to fly, sail, and deploy ground force on a global basis and the only 
global capability for communications, logistics, transportation, and 
intelligence on the planet.
          understanding the trend: defense budgets in context
    It is not my intent here to analyze the risks that unprecedented US 
debt and continuous high deficits pose for the US economy and our 
global role. But it is important to underline that our economic 
strength is as critical or more for our future security as the level of 
our defense spending. As Admiral Mike Mullen, Chairman of the Joint 
Chiefs of Staff, put it, ``the single-biggest threat to our national 
security is our debt.'' \4\
---------------------------------------------------------------------------
    \4\ Admiral Mike Mullen. Chairman of the Joint Chiefs of Staff, 
Detroit Marriott at the Renaissance Center, Detroit, Michigan. 26 
August 2010.
---------------------------------------------------------------------------
    Today's fiscal problems require perspective. Many attribute our 
crisis to continuing growth in particular parts of the federal budget, 
especially mandatory entitlements, and there is no doubt that 
entitlement spending has grown at a great pace, driven largely by 
health care costs (which have had their own impact on defense health 
care costs). Yet it is an overstatement to say that entitlements alone 
are responsible for our recent deficits. A recent analysis by the 
Center on Budget and Policy Priorities shows that the deficits of the 
past decade, as well as those forecast for the next ten years, are 
primarily the result of the 2001 tax cuts, rapid growth in defense 
spending, and declining revenues resulting from the economic 
recession.\5\
---------------------------------------------------------------------------
    \5\ Kathy A. Ruffing and James R. Horney. ``Economic Downturn and 
Bush Policies Continue to Drive Large Projected Deficit,'' Center on 
Budget and Policy Priorities, 20 May 2011. At http://www.cbpp.org/
files/5-10-11bud.pdf.
---------------------------------------------------------------------------
    Assigning blame for our federal debt and deficit crisis is less 
important, though, than understanding that defense budget reductions 
will play a role in getting it under control. It will not be the first 
time defense savings have been found, or that they have played such a 
role. In fact, this build down follows three previous ones: the end of 
the Korean and Vietnam wars, and the Cold War. As OMB Associate 
Director for National Security and International Affairs from 1993-97, 
I had direct experience of the last such build down, and it is both 
instructive and reassuring. The pace was modest, the cuts were real, 
and the forces that remained were capable.


    The chart above tracks this build down. The median annual reduction 
was 2.54%, real but gradual, the margin by which this Congress reduced 
the FY2011 appropriation for the Department of Homeland Security (2%). 
Reductions at this pace should not lead to sharp changes in strategy. 
Near-term savings opportunities could include streamlining our ``tooth-
to-tail'' ratio which, at eighty-four support and administrative troops 
for every sixteen combat personnel, is the highest among industrial 
powers.\6\ Another option would be to consolidate headquarters 
infrastructure, especially combatant commands, which according to the 
Defense Business Board have now grown to ten organizations with 98,000 
military and civilian staff and a total budget in FY2010 of $16.5 
billion.\7\ And, even more immediately, Congress could collect the $100 
billion from Secretary Gates' recent efficiency scrub, all of which was 
left with the military services to re-spend.
---------------------------------------------------------------------------
    \6\ Scott Gebicke and Samuel Magid. ``Lessons from around the 
world: Benchmarking performance in defense,'' McKinsey, Spring 2010. 
Exhibit 3.
    \7\ Arnold Punaro. ``Reducing Overhead and Improving Business 
Operations,'' Defense Business Board, 22 July 2010. Slide 30.
---------------------------------------------------------------------------
    Budget reductions paced gradually over several years would provide 
fiscal discipline and an important contribution to deficit reduction. 
Over time, such a build down would produce real change in the defense 
budget. The 2.5% annual reductions shrank the Pentagon's budget by 36% 
in FY1998 relative to FY1985, or $206 billion in constant dollar 
savings that year alone. Change at this pace allows time to rethink 
strategy and mission. Over the thirteen years in the last build down, 
the Pentagon reduced active-duty troops from 2.2 million to 1.47 
million, defense civilian employment from 1.11 million to 747,000, and 
procurement spending by two-thirds. The force that emerged was able to 
help bring peace to the Balkans in the 1990s, topple the Taliban in 
2001, and overrun the Iraqi military in 2003.
    This build down was managed by Presidents Reagan, George H.W. Bush, 
and Clinton working in a bipartisan manner with seven Congresses. Much 
of it was accomplished under the leadership of Secretary of Defense 
Dick Cheney and Joint Chiefs Chairman Colin Powell. To some extent, 
this bipartisan process is again under way; the FY2011 base (i.e., non-
war) Pentagon appropriations of $528.9 billion effectively froze the 
FY2010 amount, marking a shift away from endless growth and creating a 
starting point for a sustained process of budgetary discipline.
         targets for budget discipline and steps along the way
    Congress needs to continue this process. Cuts mean a lower funding 
level than the previous year, not a slow-down in projected budget 
growth. A lower level of budget growth does not contribute to deficit 
reduction; it only slows the pace at which defense is deficit-funded. 
As long as defense budgets grow, the discipline the Pentagon needs is 
not being provided.
    Secretary Robert Gates claimed that he had cut the defense budget 
but he only slowed its growth. Some of what he ``cut'' was overstated. 
Most prominently, he claimed that his FY2010 weapons system 
terminations cut $330 billion from future spending. Those savings were 
gross, however, not net. They included terminating the F-22 and the C-
17, though neither was in DOD's long-term budget plans. And Gates 
routinely did not net out the investment in follow-on programs to 
replace the ones he terminated, including Army combat vehicles and 
Marine Corps amphibious landing vehicles. The Gates defense budgets 
continued to grow--2.9% in FY2010, despite the terminations--and were 
planned to push even higher over the FYDP.
    Congress also has conflated defense growth with budget-wide cuts. 
The $20 billion cut in the administration's FY2011 base defense budget 
request was, nonetheless, ``approximately $5 billion above last year'' 
for defense.\8\
---------------------------------------------------------------------------
    \8\ See http://republicans.appropriations.house.gov/--files/
41211SummaryFinalFY2011CR.pdf. Congress was able to grow the defense 
appropriation while also freezing the Pentagon's base budget, referred 
to earlier, because of savings from the military construction 
appropriation resulting from the wind-down of the 2005 BRAC process.
---------------------------------------------------------------------------
    Congress should use ``current services'' as its baseline, starting 
with the FY2011 base defense appropriation. The experience in the 
Reagan-Bush-Clinton period showed it is possible to manage a gradual 
budget reduction pace, and the FY2012 request should be the first one 
to sustain such discipline. The administration's $553 billion base 
budget request is already overtaken by events. Were it appropriated, as 
the House Armed Services Committee authorized, it would represent $24 
billion (5%) in growth over FY2011. This is unrealistic. Even the 
President acknowledged it on April 14, seeking a minimum of $400 
billion in reductions from his own projections over the next 12 years 
and using the FY2011 appropriation as the baseline. Similarly, the 
House Appropriations Committee reduced the FY2012 request by $8.9 
billion, but that still leaves a 3% increase and makes no contribution 
to deficit reduction.
    The President's proposed $400 billion in reductions from the plan 
should be treated as a ``ceiling'' for defense, the most the Department 
might expect to receive. The Defense Department could provide those 
savings and more from current budget projections and still maintain 
budget growth at the rate of inflation. This level of build down does 
not require a change in strategy, despite the ``strategic review'' 
Secretary Gates began (see table below).


    Indeed, deeper, real cuts are clearly both possible and 
responsible. The President's Simpson-Bowles debt panel, the Bipartisan 
Policy Center's Domenici-Rivlin Debt Panel, and the Sustainable Defense 
Task Force sponsored by Representatives Barney Frank (D-MA) and Ron 
Paul (R-TX) all proposed more substantial reductions ranging between 
$500 billion and $1 trillion over ten years. Most interestingly, 
working different paths, although with some consultation, these panels 
found common priorities for defense discipline: the size of the force, 
hardware investment decisions, personnel policies, and management 
efficiency (see chart on page 8).
    Some of these recommendations are already subject to congressional 
action. This is an important, if minimal, step. The cost of the 
military health care program has more than doubled since FY2001, from 
$24 billion to $52.5 billion, and the Pentagon projects it to continue 
growing at disproportionate annual rates of 3% to 5% through 2016. 
Working-age military retirees and their dependents were expected to pay 
approximately 27% of program costs when TRICARE was established in 1995 
but have not seen any cost increase since then. Medical inflation and 
policy changes thus narrowed their cost sharing to approximately 11%. 
The fee increase being considered would increase costs for single 
members by $2.50 a month, from $230 to $260 per year, and for members 
with families by $5 a month, from $460 to $520 a year. The Defense 
Department would save $340 million next year if the fee is increased, 
and indexing that fee to Medicare inflation would accelerate savings in 
later years.\9\
---------------------------------------------------------------------------
    \9\ Robert Hale. ``FY2012 Budget Briefing,'' 14 February 2011. 
http://www.defense.gov/transcripts/transcript.aspx?transcriptid=4770. 
For the history of TRICARE cost sharing, see ``Report of the Tenth 
Quadrennial Review of Military Compensation: Volume II,'' Department of 
Defense, July 2008. p. 46.
---------------------------------------------------------------------------
    Congress also appears ready to support the Pentagon's request to 
terminate two programs targeted by the independent defense savings 
panels, the Marines' Expeditionary Fighting Vehicle (EFV) and the 
Army's Medium Extended Air Defense System (MEADS). Both programs needed 
such budgetary discipline. The Government Accountability Office 
reported that EFV costs per unit grew by 170% since 2000, to $24 
million, and that the vehicle's design and schedule were in doubt.\10\ 
Meanwhile, no amphibious landing of the sort that would justify EFV has 
been executed under combat circumstances since the Korean War's 1950 
Battle of Inchon. MEADS, also on the block, duplicates the ongoing PAC-
3 update to theater missile defenses and has long been a low priority 
for the Army.
---------------------------------------------------------------------------
    \10\ ``Assessment of Selected Weapons Programs,'' Government 
Accountability Office, 29 March 2011. http://www.gao.gov/new.items/
d11233sp.pdf.
---------------------------------------------------------------------------
    Consensus among these panels can provide further guidance for the 
Congress. Additional savings could come from slowing and terminating 
parts of the F-35 Joint Strike Fighter program and from reducing end 
strength as we withdraw from Iraq and Afghanistan.


                linking fiscal and strategic discipline
    Returning defense budgets to the peacetime levels more typical of 
the past 40 years, as proposed by the fiscal panels, raises the more 
fundamental question of strategy. Budgets discipline strategy and 
strategic (and mission) choices can discipline budgets. Such discipline 
has been noticeably absent over the past ten years. The Domenici-Rivlin 
panel moved in this direction and it is also the focus of our article, 
based on the panel's work, in the January/February 2011 edition of 
Foreign Affairs.\11\ In contrast to the Quadrennial Defense Review of 
2010 and, very likely, the current strategic review, this approach 
would set meaningful priorities among military missions, calculate 
acceptable levels of risk, and tailor the force within budget 
constraints. Priority would go to military missions that are probable, 
consequential, achievable and appropriate.
---------------------------------------------------------------------------
    \11\ Gordon Adams and Matthew Leatherman. ``A Leaner and Meaner 
Defense: How to Cut the Pentagon's Budget while Improving Its 
Performance,'' Foreign Affairs (Jan/Feb 2011).
---------------------------------------------------------------------------
    In our judgment, the United States has never been as secure as it 
is today. Despite the rhetoric about an increasingly dangerous world, 
the US faces no existential threat and substantial choice about the 
international commitments it makes. Confronting Al Qaeda's central 
network is an important priority. Defending against cyber attack also 
is significant, though the US needs to be cautious that it does not 
stimulate an even greater threat though our own offensive investments 
and to ensure that we work with the international community to control 
the challenge we face. The quality, rather than the quantity, of our 
defense investment against these two challenges is what matters. As the 
bin Laden mission demonstrated, special operators are the most 
effective capability to deal with the terrorist threat, combined with 
international action, financial tools, and law enforcement. A large 
ground force is not the right instrument.
    Large-scale conventional combat, a capability that deters 
adversaries, and some level of sea lane patrol to provide presence are 
next-level priorities. But, again, the end of the Cold War has brought 
unprecedented levels of security to the US. Large scale conventional 
war is less likely and the US is gradually slimming its nuclear 
deterrent to reflect the much lower level of nuclear threat it now 
faces. Neither of these missions justifies continued growth in defense 
spending.
    Still, as Secretary Gates pointed out in May 2008, military 
services with lesser roles in current wars chronically plan around 
``Next-War-Itis,'' a fixation on potential future conflicts that would 
feature them more prominently and thus inflate their budgets well 
beyond demand. China is the scenario on which this planning focuses, 
especially for the Air Force, Navy, and advocates of programs that are 
aimed at ensuring US ``access'' to the Pacific theater.
    There is no doubt that China is a rising power and is making 
substantial investments in its defense capabilities, but some 
perspective is needed here. China's military investment is, according 
to the most informed sources, one-seventh of ours. Chinese capabilities 
at sea and in the air are minimal compared to those of the US and will 
take decades to catch up, a goal reachable only if the US stops 
investing in defense. Moreover, there is little indication that China 
seeks a military confrontation with the US and no grounds at all for 
viewing the relationship as one driven by fundamental ideological 
hostility. We must be careful to avoid the contradiction of viewing 
China as a country with intentions but no capability for confrontation 
while considering ourselves as a power with capabilities but no 
intention for confrontation. There is ample room here for a long-term 
strategy that maintains our military power and presence in the Pacific 
region, avoids an arms race, and engages China on the diplomatic, 
economic, and financial levels. Indeed, the Chinese may be looking for 
the US to get its fiscal house in order, which is in the interests of 
both powers.
    The prospect of a major conventional confrontation elsewhere is 
minimal. North Korea's military is numerically impressive but would be 
confronted by a substantially different South Korean military than that 
which existed in 1950. The US role in such a confrontation would be 
significantly lower, limited to sea and air power. Pacific strategy 
more broadly can and should be one of nuclear deterrence, air support, 
and naval presence. The prospect of a long-term conventional conflict 
with Iran is also low. Iran's vast size, to say nothing of the public 
hostility to any US presence, makes anything more than air strikes or 
Special Forces operations unlikely. And for all the rhetoric and 
concern about Pakistan, the likelihood of a major US ground presence in 
that country is near zero for the same reason.
    It is hard to find another case where a sizeable US conventional 
ground presence is likely any time in the near future. It is 
appropriate to hedge against a conventional ground conflict or the use 
of naval and air power, but a smaller US force and budget would be 
ample to cope with this risk. Today the US already has the most 
dominant global conventional capability on the planet, providing a 
significant hedge against such challenges, and we would continue to 
have such a capability even should the budget go down as it did in the 
1990s.
    The most cited danger is also the most recent addition to US 
military missions: fragile states, insurgencies, nation-building, and 
post-conflict reconstruction. Here we are at substantial risk of 
learning the ``wrong'' lessons from Iraq and Afghanistan. The US was 
not dealing with state fragility in either country. We consciously 
pursued a strategy of regime change using conventional combat forces in 
both cases. Once the occupying power, we faced an insurgency our 
invasion helped stimulate. The internal capacity to govern and provide 
for balanced development disappeared partly because we ``disappeared'' 
it.
    Basing future policy on this model is a dangerous but lesser-known 
case of the ``Next-War-Itis'' Secretary Gates warned about. It is far 
from clear that the US military is or will be in demand for large-scale 
invasion, regime removal, occupation, nation-building, or fighting 
insurgents. These missions have had their day, our success has been 
less than stunning, and, thus, they deserve a low priority. Future 
conflict resolution, conflict prevention, and support for governance 
and development are civilian missions for the US, in concert with 
international partners, not the future of the US military.
    Reviewing defense missions in this way would lead to tough, 
strategy-driven choices on personnel and investment--the areas that the 
Pentagon most seeks to protect from budgetary scrutiny. US ground 
forces have grown by 92,000 soldiers and Marines since 2007, in large 
part linked to the rotation requirements of long counterinsurgency and 
nation-building campaigns in Iraq and Afghanistan. Our proposed 
priorities could reverse that growth. If the likelihood of conventional 
confrontation is as we see it, our Asian and especially European allies 
are sufficiently secure to permit a drawdown of the 80,000 US forces 
permanently stationed overseas. And if the tasks facing US military 
forces are less than we have given them over the past ten years, the 
defense infrastructure could shrink as well, eliminating another 
100,000 uniformed positions from the half-million service members that 
the Pentagon classifies as working in overhead positions and not 
deployed.\12\ Taken together, these end strength reductions could be 
phased in over five years, providing significant savings but retaining 
a globally operational military capability.
---------------------------------------------------------------------------
    \12\ Arnold Punaro. ``Reducing Overhead and Improving Business 
Operations,'' Defense Business Board briefing, 22 July 2010. Slide 23.
---------------------------------------------------------------------------
    Mission prioritization can also inform investment choices. Our 
current air dominance suggests that continuing current fighter-jet 
programs rather than building a new F-35 may be adequate. Slowing the 
rate at which we buy new Virginia-class attack submarines also may be 
sufficient given our global dominance, and lowering our current 
investment in missile defenses may be better tailored to the real 
missile threat. Ultimately, the defense savings proposed by the 
independent debt panels would lead to this kind of strategic rethink. 
Yet these panels would also retain a dominant global military force, 
and their savings are achievable through modest, incremental steps over 
a period of years, long enough to accommodate discussion and 
implementation of a changed strategy.
                 enduring security of the united states
    All of these strategy and mission thoughts are, for now, 
suggestive. We are currently working, with the support of the Peter G. 
Peterson Foundation, on a more detailed review of military mission 
priorities and the forces and costs associated with resetting them. 
Making choices in this way would do what the 2010 Quadrennial Defense 
Review failed to do and what the ongoing strategy review is unlikely to 
do: constrain the defense budget to a strategy that prioritizes 
missions, deliberately manages risk, and accepts the resource 
discipline reality advised so long ago by Bernard Brodie.
    A broad approach to strategic and fiscal discipline in defense 
helps provide a sound footing for federal finances and the economy 
while also improving our security. It is possible while retaining the 
most superior global military capability history has ever seen. The 
United States would continue to be the only country able to patrol the 
world's oceans, deploy hundreds of thousands of ground forces to any 
point on the globe, and dominate the global airspace with superior 
combat fighters, long-range bombers, and unmanned aircraft. At roughly 
60,000, US special operations forces alone would be larger than the 
militaries of more than half the world's countries. More broadly, the 
United States' entire post-reform active duty force would exceed the 
forces of any other country except for China and India. Supporting this 
overwhelming force, the US would retain the world's only global 
military transportation, communications, logistics, and intelligence 
capabilities. And, even with a trillion-dollar reduction over ten 
years, an unsurpassed defense budget would enable this force. For 
perspective, our FY2009 military research and development spending 
alone exceeded China's entire defense budget.
    Admiral Mullen has underlined the importance of returning this 
budgetary discipline to the Defense Department. As he acknowledged in a 
budget press briefing on January 6th of this year, ``the defense budget 
has basically doubled in the last decade. And my own experience here is 
in that doubling, we've lost our ability to prioritize, to make hard 
decisions, to do tough analysis, to make trades.'' \13\ He is precisely 
right.
---------------------------------------------------------------------------
    \13\ Admiral Mike Mullen. Chairman of the Joint Chiefs of Staff, 
Pentagon, Arlington, Virginia. 6 January 2011.
---------------------------------------------------------------------------
    Congress and the administration now have the opportunity to improve 
our national security at a reduced cost, while ensuring a balanced 
package of deficit reduction. The experience of the Reagan-Bush-Clinton 
exercise shows how meaningful that modest defense budget reduction, 
implemented gradually, can be. When the next generation of policymakers 
looks back on the era of restraint under way today, they will see that 
matching fiscal and strategic discipline led to a bipartisan defense 
program that responsibly and soberly saved as much as a trillion 
dollars from the coming decade of defense spending while ensuring that 
the US continues to play a leading role on the world stage.

    Mr. Garrett. And I thank the gentlemen, and I thank the 
panel. I yield to myself for the first five minutes for 
questions. So, I will begin where the Chairman left off, one of 
his closing comments that I think is very apropos, it says, 
``Our budget debates must never lose sight of the solemn 
obligation in Congress to provide our troops fighting overseas 
with the resources they need to successfully complete their 
mission and our commitment to them upon their return.'' And I 
think that is really what it is all about, why we are here 
right now. And I would say, as well, in making sure that last 
line, ``Our commitment to them,'' to make sure that they are to 
have their safe return and that may necessitate making sure 
that they have the resources, the training, and the equipment 
necessary so that they actually do come back safely.
    The first point, I just recently had the opportunity to 
look at some of the so-called top secret memos and what have 
you with regard to Libya. I will not reveal what I have learned 
there but in the public releases on those that we received from 
the White House about a week or so ago with regard to Libya, 
the administration estimated that the cost of military 
operations over there through September 30, so a month or so 
from now, will total approximately $1.1 billion. And I am 
wondering whether you all have analyzed the basis for the 
administration's estimates in that regard and if so, how do you 
make that analysis?
    Mr. Mosher. We have not independently looked at that 
number. Those numbers are still rolling through and we have not 
done a separate analysis of that.
    Mr. Garrett. Do you do a pre-analysis of that? Have you 
done any look at this that we can say, turn to you folks who we 
always turn to about these things.
    Mr. Mosher. No, we have been keeping track of it and we 
would be happy to take a look at it for you but we do not have 
anything to share with you today a CBO analysis of those 
numbers.
    Mr. Garrett. Okay. And last question on this then, so going 
forward should we anticipate something from you or do we need a 
specific request.
    Mr. Mosher. If you ask us to take a look at it, we would be 
happy to do so.
    Mr. Garrett. Okay. Very good. To some of the comments that 
Dr. Adams raised, but I guess it goes to the whole panel, and 
maybe goes to a Congressman as well to begin with. So the 
Defense Department is said to be consistently over budget over 
the years, both in equipment procurement and in acquisitions. I 
understand in fact of the 92 major defense acquisitions, 75 
percent are over budget, and 20 percent of the programs are 
over budget by more than 50 percent. I wonder well first of 
all, whether the Congressman would like to speak about that 
issue and then also, back to CBO again whether you have done 
any analysis or maybe Dr. Adams has done analysis, as to why is 
that the case. And I have been here for eight years trying to 
get some explanation from DOD on some of these things. To the 
entire panel.
    Mr. Talent. Sure well, you know I will comment on it Mr. 
Chairman. Yeah we need procurement reform. I go into some depth 
anyway in the statement and so does the Perry-Hadley Panel and 
I think there are savings that can be achieved from that. I 
said before there was a price to weakness, well, you know one 
of the issues when you are underfunding Procurement and 
Modernization over time, and particularly when you underfund it 
and then you are inconsistent with it as well, you contribute, 
when I say you by the way I mean the government, you are 
contributing to the driving up of costs.
    One thing for example, normally the costs of programs go 
down as you buy them out, as you buy them in volume. Okay? 
Well, yes the DDG-1000 Destroyer's going to cost a lot more per 
copy if you buy only one or two, as opposed to the 32 that you 
originally decided to buy. The reason why these programs and 
the numbers are cut back over time is because we do not have 
the money to go out and buy the requirements. So yes, the per 
copy cost goes up.
    The defense industrial base is capable of seeing the 
direction this government is going in, and when we are not 
funding these budgets adequately, they do not put a lot of 
money into the defense industrial base. We do not really have a 
military industrial complex anymore. If we do we have a much 
smaller one than we used to. We only have two aircraft, at 
least prime aircraft manufacturers, any more; all of that has 
slimmed down. Well the smaller a defense industrial base that 
is undercapitalized has less competition and is less capable of 
producing these systems and these platforms at an efficient 
price.
    Now there are a lot of things internal to the department; 
and I mean in my statement what I said was, I think in an 
effort to bring down costs, and this is not a new thing by the 
way, every secretary that I served under wanted to bring down 
procurement costs, and Congress passed several pieces of 
legislation to do that. Typically what is resulted is increase 
in processes, you know the number of people involved in 
supervising these programs and the number of desks that 
decisions have to go through. And as we pointed out on the 
panel what that does is it reduces accountability and 
responsibility within a chain of line management. So, the 
answer is, if you are going to have more process or the same 
amount of process, make certain that there are people 
designated to be in charge of the particular programs, that 
they have the authority, and that they are held accountable for 
what they produce. Another very important thing, is to reduce 
the design bill cycle which you know now can be upwards of 20 
years, reduce it down to five to seven years maximum and just 
say, look we are going to get the capability that we can get by 
producing these platforms in five to seven years. We are going 
to get them in the field. We are going to get hulls in the 
water. We are going to get aircraft in the sky. We are going to 
get tanks and track vehicles on the ground, and then we will 
have evolutionary upgrades over time. But part of the 
difficulty has been the funding line.
    Mr. Garrett. I understand.
    Mr. Adams. Let me comment on that Mr. Chairman. Years ago a 
very wise person in the defense procurement world, Norm 
Augustine, defined something called Augustine's Law; and 
Augustine's Law basically pointed on a trajectory given the 
increase in unit costs of hardware programs that would lead us 
by 2054, which now does not look that far away, where we would 
have essentially one airplane in the air capability of the 
United States military. The Air Force would get it three days a 
week, and the Navy would get it three days a week, and the 
Marine Corp would get it one day a week, and, of course, they 
would work. And he was right. Augustine ended up being the 
Chief Executive Officer for the Martin Marietta Corporation and 
a very distinguished defense events industrial based 
spokesperson.
    The problem in procurement is it goes way past this 
Administration and way back in history as Senator Talent has 
said, and one of the very effective pieces I think that the 
Perry-Hadley Report does talk about is procurement. The problem 
is it is very difficult to fix. And it is very difficult to fix 
because the incentive structure is wrong. The incentive 
structure both in the services and in the industry is backwards 
from an incentives structure that would lead to the kind of 
efficiencies you would want in procurement. For the services, 
getting a program into the budget is the top priority. If you 
get the program into the budget and get a Program Element 9 for 
it and begin the program, you then worry later about the fact 
that it is going to cost you more than you originally 
projected, but it looks cheaper at the start and that is a way 
to get it into the budget. So the incentive is to get it into 
the planning process. For the industry, the incentive is to get 
the contract. So if you put the program in at a very cheap rate 
at an R&D level you hope to make up that benefit in the 
procurement of the program when the dollars grow.
    So the incentive for the services is backwards, the 
incentive for the industry is backward, and the end result is 
we end up with what I call the ``Adams Law of Defense 
Procurement'' which is almost everything we buy costs us twice 
as much, takes twice as long, and gives us about half the 
performance that it should, and it starts with the incentive 
structure. It is very hard to change those incentives even with 
powerhouse administration at the Pentagon, even within the 
Pentagon the incentives structure is to get it in the budget 
first. So it is an enormously difficult problem. Only one 
Secretary of Defense, or Deputy Secretary, that I know of has 
begun to even get a handle on it, and that is Dave Packard, who 
was Deputy Secretary back in the 1970s. And Dave Packard, who 
came from Hewlett Packard, therefore had a lot of private 
sector management experience, managed to start to get his arms 
around the procurement process, and then of course like all 
senior officials left office.
    So I have watched this cycle of reforming procurement go on 
for probably 40 years now, and there is not a new idea in the 
barrel and nobody yet has figured out how to get the right 
incentive structure.
    Mr. Mosher. We have not done independent analysis of this, 
but there is a very rich literature going back many years as 
both the other witnesses have suggested that suggests that it 
is 20 to 30 percent cost growth in weapon systems; it is not an 
iron law that obviously many factors that happen; it is not a 
lot of physics but you have incentives and there are just many 
things that happen. DOD tends to buy weapon systems that are at 
the cutting edge of technology, which is always a perilous 
place to try to predict what costs are going to be, and 
although there are incentives that they talk about, well-
meaning people can come up with estimates that turn out to be 
low when you try to deal with the reality of putting systems 
together. So there are a lot of reasons why costs of weapon 
systems grow and as I said, the history is long that is 20 to 
30 percent on average for weapon systems cost growth.
    Mr. Talent. There are examples of programs that they have 
done right or that they have fixed midstream. I mean C-17 is an 
example. When Bill Perry took office, C-17 was a very troubled 
program and he fixed it, and he did it through the kinds of 
procedures that we recommended. He took personal control of it. 
He took charge. He had the authority. He had the 
responsibility. He was accountable and he brought the plane in 
under budget and on time. The F-18, the ENF, is an example of a 
really outstanding program. That was an evolutionary upgrade 
which points to the direction that I think we need to go in.
    Again, we have to accept responsibility with the rest of 
the government because when we have funding that is not up to 
the task, they feel they have to cram a lot of technology into 
the platforms they are given. I am concerned about this cargo 
tankard they are going to try because they need cargo and they 
need tankards, so they are going to try and build a cargo 
tankard. Well I hope they can do it, but if there are problems 
with it, maybe because they are trying to put two functions 
into one plane. So I think there is responsibility in a lot of 
different areas.
    Mr. Garrett. I appreciate that, and just as I said, sitting 
here for eight years there is just a mountain of frustration of 
trying to ever be able to look to CBO or look to the DOD when 
they come here to testify to say, is what we really should be 
anticipating and not in this year's budget but out of the 10 
year budget. I guess the commonality here is nothing is going 
to change any time soon. Gentleman.
    Mr. Van Hollen. Thank you Mr. Chairman. Let me thank all of 
you for your testimony this morning. Senator Talent, let me 
begin with you because I was a little bit struck that in your 
testimony nowhere do you mention the very important connection 
between the strength of the U.S. economy and the strength of 
our military. I assume you do not dispute the idea that the 
strength of our military flows in large part because of our 
strong economy. Is that correct?
    Mr. Talent. Yeah, I mean our economic wealth and prosperity 
has been many times in history a key aspect of our military 
strength. It goes the other way too.
    Mr. Van Hollen. Absolutely, and do you agree with what the 
Chairman of the Joint Chiefs of Staff, Admiral Mullen, said 
that our debt is currently the largest threat to our national 
security? Do you agree with that assessment?
    Mr. Talent. I think there are three, and I would not want 
to choose. I think the vital importance of getting back to 
sustained economic growth and job growth is hugely important, 
and I sense within the free market and the private sector that 
the government wants that to happen and it wants to encourage 
that to happen. I think the issue with the debt is hugely 
important. Now, you guys are the experts, but to me the core of 
that problem is the structural, and I am going to try and state 
this as neutrally as possibly, a structural mismatch between 
the revenue that is dedicated to the entitlement programs and 
the cost of the entitlement programs. And the rest of the 
budget, yes it is a factor, but a minor factor. And then the 
third thing would be these national security challenges. So I 
would say it is one of three.
    Mr. Van Hollen. Right. So I take it that you clearly 
disagree with the conclusions of the two bipartisan commissions 
with respect to defense spending and the importance of trying 
to address that issue as part of an overall strategy to 
strengthen our economy. Do you disagree----
    Mr. Talent. Those are budget-driven analyses.
    Mr. Van Hollen. I will get to that in a minute, but if you 
could just indicate whether or not you agree with what Admiral 
Mullen said, which, and I quote, ``With the increasing defense 
budget, which is almost double, it has not forced us to make 
the hard trades. It has not forced us to prioritize. It has not 
forced us to do the analysis.'' Simple question, do you agree 
with that statement by the Chairman of the Joint Chiefs of 
Staff?
    Mr. Talent. No, I agree with his statements a few years ago 
when he suggested we needed to spend four percent of the GDP or 
we are not going to have a capable military. If I can explain. 
I do not see how he can say hard choices have not been made 
when the service which he used to be the Chief of Staff is 
headed down to 210 to 240 ships, a level which nobody believes 
will allow us to be a global Navy. I mean, if that is not a 
hard choice that is being made. He is retired ships, he and his 
successor chiefs, have retired ships because the cost of 
maintenance was too high, and so the numbers of them is going 
down. That is a pretty hard choice.
    Mr. Van Hollen. I think, Senator, what he is doing is 
strategy in the grand sense with respect to the situation we 
face with the deficit and the debt. You mention in your written 
testimony the rising power of China. Nowhere do you mention the 
fact that China is the largest holder, foreign holder, of our 
debt, and the influence that foreign entities can gain over the 
United States through the holdings of those debts.
    I mean, that is not raised there. Now, I could not agree 
with you more that the defense budget should be driven by 
strategy, not by budget, and Dr. Adams mentioned that. I think 
there is agreement on that. As you well know, you will find 
across the political spectrum, very different views as to what 
needs to be done to make sure that the United States remains 
number one. From the Cato Institute on the more libertarian 
side, to other think tanks on the left and everywhere in 
between. But I certainly do not dispute the basic premise that 
defense is our number one obligation and it needs to be built 
off a strategy. The question is what strategy, and there I have 
to ask you, a number of times you have mentioned sort of 
pegging defense spending to GDP. My question to you is, is not 
that just doing it by the math? Well you are, are you not? I 
mean you are picking an artificial number. That is not driven 
by strategy, is it?
    Mr. Talent. Well, I am actually glad you asked it because 
it gives me an opportunity to make a point. It is our belief, 
at Heritage and when we advocated at Four Percent for Freedom, 
that that was approximately what we needed. That percentage 
would produce what we needed in order to provide for the 
capabilities of the DOD according to a strategic-based 
analysis, because it would have freed up about another $40 to 
$50 billion a year that we could have put into modernization 
and procurement. The reason though that we phrased it in terms 
of a percentage of the GDP was to make an overall point, which 
I think is a point that maybe we can all agree on, and we ought 
to stop and think about this because it is so easy on the 
Budget Committee to think of any expenditure of government as 
kind of an enemy that you want to reduce and as too big.
    Let's go back and look at this strategically for just a 
second. At the end of World War II the leaders of the United 
States on a bipartisan basis changed strategically their 
approach to the world. They had been playing a secondary role 
outside of the western hemisphere. That was a tradition in 
American foreign policy. Well they recognized it had not been a 
success, that policy, in the first half of the twentieth 
century. We had two world wars and then we were entering a 
nuclear age, an age of asymmetric weapons, when another world 
war would just simply be intolerable, and so what they decided 
to do was to engage, to be more proactive, to manage risk and 
conflict instead of letting it get out of control with a view 
towards achieving three things, three baseline things: 
preventing the spread of totalitarian domination, protecting 
the American homeland, and doing that without a third world 
war. Now here is my point.
    Mr. Van Hollen. No. Look I am very familiar with that 
history, really I am, and my point was a pretty simple one. 
That I agreed with your assessment that military strategy 
should be based on strategy, not budgets, and that there is an 
inconsistency with that in picking an artificial GDP number. 
Now if what you are saying is, you have looked at the strategy 
and your conclusion is that, forevermore into the future, four 
percent is what is needed. There seems to be a little 
inconsistency there.
    Mr. Talent. Not forevermore, just for the foreseeable 
future.
    Mr. Van Hollen. Dr. Adams, if you could just expand on your 
testimony regarding the approach of the Quadrennial Defense 
Review and how you can do exactly what I think everybody in 
this room would like to do, which is make sure that we do have 
a military strategy that is based on making sure we protect our 
vital interests, but that we do it recognizing that the economy 
and the debt is also an important part of our overall strategy. 
And to talk about one without considering any of the other is 
to take a very narrow view about the power of the United States 
and how we project power and interest.
    Mr. Adams. Yeah, I would be happy to address that. The 
reality historically for the United States or any country in 
the world has always been that their resources and their 
strategy are linked. And that resources issue is not just 
budgetary resources, it is human resources, it is economic 
resources, it is the industrial capacity of the country, the 
productive capacity of the country, the trading capacity of the 
country. All of those issues are part of what any decent 
strategist would call grand strategy. It is not just about 
military capability, and we have had a tendency to focus just 
on military capability as what defines American leadership in 
the world. It is an important element; it is not the only 
element, and it is largely a supporting element to a broader 
sense of strategy.
    We also have a deficit in this country of thinking about 
strategy in the broader sense. So that when produce strategic 
documents, they tend to be documents that come from the 
Department of Defense, which has typically and rightly a 
concern about the military capabilities of the United States, 
but it comes the dominant strategic thinker for the government 
of the United States. Stepping back and looking at our 
capacities as a country. Stepping back and looking at the 
global situation we face, looking at our mixture of tools in 
the tool kit; civilian tools, military tools, trading tools, 
investment tools, all the elements that go into state craft and 
grand strategy is where the focus really should be.
    The major problem that I had with the Quadrennial Defense 
Review and, arguably, with the Perry-Hadley Report as well, was 
that it took too narrow a view of what strategy is, and it did 
so saying we must simply cover every single potential danger, 
risk, threat, challenge, or difficulty that the United States 
may face in the world and build a military capability to deal 
with it. The major weakness of the Quadrennial Defense Review 
mirrored in the Perry-Hadley Panel, was to say all missions 
must be fulfilled, all missions are equal, all missions must 
have reduced risk to zero. No country in the world has ever 
been able to do that. No country in the world will ever be able 
to do that.
    So every country measures its risks and challenges, 
evaluates what risks it is prepared to accept, weighs its 
defense commitments in the context of its broader domestic 
internal economy, its capacity to produce, its involvement in 
the global economy, the stability of its currency, its trading 
relationships. That is grand strategy. We have not done that 
and we have tended to be biased in terms of the military 
instrument here.
    Our view in doing work that we did for the Rivlin-Domenici 
Panel was to say, is there within a resource-constrained world, 
because it always is and always will be, a way of providing a 
scaling of the challenges that America may face on the military 
side that allows us to build capable military forces that 
retain the global superiority that we have today? This was in 
other words a strategy, not a numbers-driven exercise. Frankly 
in my judgment a share of GDP as a way of measuring defenses is 
a totally numbers-driven exercise; it is math, not strategy. So 
we tried to tailor it to what do you do in the world? What is 
the appropriate role for the United States? How likely and 
unlikely, and what capabilities do we need for dealing with 
nuclear challenges? How likely and unlikely, and what 
capabilities do we need to deal with potential risks of 
conventional war and conventional deterrence? How likely and 
what resources do we need to deal with terrorism? What do we 
need in terms of capacity to steam the world seas? What do we 
need to handle insurgencies in fragile states and how important 
are all of those missions in terms of our overall security for 
the United States? How much of them are really military 
responsibilities or the responsibilities of some other capacity 
in the US government? Which I certainly encourage this 
Committee to take a good look at. And therefore, what is an 
appropriate level of expenditure and an appropriate level of 
forces that we would need to handle those challenges?
    And as I say without exhausting you with the details on it 
at this point, what we came to was a conclusion that we would 
retain a globally dominant military capability with 15 percent 
fewer resources over the next 10 years than currently projected 
in the Department of Defense budget, that retains the capacity 
to steam the oceans, that retains the capacity to deploy 
forces, that would be a smaller conventional force but more at 
the point of the spear than in the infrastructure because that 
is how you would have to rebalance that capability, and you can 
accomplish America's national security purposes for 15 percent 
fewer resources than currently projected. It is both math and 
strategy. And these Budget Committee members have to deal with 
both of those things, math and strategy. Math is important, 
strategy wears a dollar sign.
    Mr. Flores. I am going to try to get in two questions 
quickly if I can. Mr. Mosher can you recap for us, you pointed 
out the rapidly increasing price of health care on our 
military. Can you go through those metrics again quickly? And 
maybe we can get that slide back up as well.
    Mr. Mosher. Sure. Certainly, Mr. Flores. I, see if we 
could, it would be the second slide. It is actually also Figure 
4 in the prepared statement in front of you. You can see that 
the growth is going to from 2011 to 2030, roughly double in the 
military health system costs. That is what we have here. And 
the point I made before was if you would look at the year 2000 
to the 2011 we have seen a doubling since then.
    Now a number of those, you know, a lot of that growth if 
you look at the bottom three lines which is the military 
personnel involved in the providing medical service and 
research, et cetera, and then the direct care which is what is 
provided in the military treatment facilities, and then 
purchased care and contracts which is the services that DOD 
purchases through contracts with private sector providers. 
Those three lines have been with us for a long time, and what 
started to happen after 2000, there were a number of benefits 
that were added, the big one is the TRICARE for life accrual 
payments and that is a big wedge there; but you also see that 
the direct care and the purchase care lines, the dark blue and 
the medium blue line, those start to grow significantly. And it 
is the growth that we see in the DOD experience focusing on the 
last six years because that is when a number of policies that 
were taken, and new policies have sort of taken place, and so 
if we do it much earlier it is hard to do the measure. But that 
growth has been much higher, as I say, and in some cases three 
times higher than the national growth rates per user.
    There is been another factor in those numbers and that is 
that you have seen an increase in the number of dependents and 
retirees who have come into the system, under 65 retirees. And 
so whereas in 2000, I believe the numbers were about 75 percent 
of those who are eligible among family members, dependents and 
retirees, that number's gone up to 85 percent. So you have more 
people joining the system.
    Mr. Flores. I think you are making the picture pretty 
clear, in other words we are creating obligations for people 
who have moved out of the military and are not serving and are 
becoming an increasing part of our defense cost. My question 
would move more to somebody who is been on the frontline of 
this, and that would be for Senator Talent. What are your 
suggestions as far as what changes you would propose to try to 
mitigate the explosion of costs in this particular part of our 
defense budget?
    Mr. Talent. Well, if you are talking about military health 
care, I think it is really important to meet and talk with a 
community of retired folks and talk about how you can provide 
the services that we are providing at lesser costs. And 
generally I believe that is to try and make it a program where 
you are expanding their choices and therefore creating greater 
competitions so that they will hold down costs. I think that is 
the way. Now what I said in my statement was that I think the 
increase in compensation is fully justified by the performance 
of these individuals, because they have preserved the peace, 
they have protected our interests, and they have done it with a 
declining share of the federal budget and a declining share of 
the GDP. This is the point I was making, rather than thinking 
of defense spending as a failure, we should think of what we 
have achieved at a small percentage of the GDP that has been 
declining basically over time.
    Mr. Flores. I agree with you. I think many people have done 
a lot for very little.
    Mr. Talent. No question.
    Mr. Flores. I want to move on to another quick question.
    Mr. Talent. The way it is structured now, we have to great 
an incentive for them to leave the service too early and then 
we lose the benefit of their experience in training.
    Mr. Flores. One other question, you talked about the C-17 
experience and what Bill Perry was able to do and I have 
another experience and that has to do with USS Missouri, which 
was built by General Dynamics, it came in under budget, 
delivered nine months early. It seems like those were more the 
exception than the rule, when it comes to defense procurement. 
How do we inculcate those experiences into defense procurement 
more broadly?
    Mr. Talent. Now that is a really good question. I 
personally think it is going to be easier to do; it will be 
easier to do in the aircraft side, because you are producing 
higher volumes of platforms, and because if you just think of 
an aircraft production line as opposed to a ship building 
production line, you are not moving as heavy or as big of 
stuff. I would encourage you, if you have not done it and you 
have an opportunity to visit both lines, and you will see; and 
that is why I think there are more successful experiments on 
the aircraft side. There are more contractors who have done 
really good lean manufacturing techniques, and really perfected 
it and gotten us platforms at low per copy cost.
    I think ship building is going to be a bigger challenge, 
but if on the government side it can say look this is the kind 
of funding we are going to provide. It is a reasonable funding 
in terms of the kind of ships that we expect. We are going to 
have to do a lot more in terms of ship building if we want to 
protect the size of the Navy. And then set targets for them and 
hold them accountable, and supervise them with small groups of 
empowered people within the DOD, and avoid what both my 
colleagues here have been talking about, requirements creep. 
You cannot do everything with every platform. So get hulls in 
the water. And I think you can make it better over time but 
there is no substitute for senior people taking responsibility 
and being accountable for the outcome.
    There is a quote from John Lehman in my statement which is 
very interesting because John points out in World War II we had 
1,000 people in the ship building bureau. We produced 1,000 
ships a year. When he was Secretary of the Navy I think we had 
2,500 people and we were producing like 20 ships a year, 
something like that. Now we have got 4,000 people, we are 
producing six ships a year. And it is not because it is not 
good people, it is the confused authority and accountability.
    Mr. Flores. Thank you.
    Mr. Garrett. Thank the gentleman. Thank the panel. Ms. 
Schwartz.
    Ms. Schwartz. Well I really appreciate some of the 
conversation we are having and I think it is incredibly 
important one to have. So thank you to the ranking member for 
asking for this hearing and for us being very attentive to I 
think what are really two issues. One is that certainly on this 
side of the aisle, but I think all of us agree very strongly 
that we are first and foremost committed to a strong defense to 
be prepared for any future, current or future concerns and 
threats to our nation and that is our number one priority as 
members of Congress and as a nation to be safe and secure.
    Secondly, we are very concerned about the debt and in 
reducing the deficit, and are well aware of the fact that the 
Department of Defense is a good chunk of our budget, and I 
think you have talked about how much it is. It is 60 percent of 
our discretionary budget. We spend a lot of time on this 
committee and in other committees focusing on 12 percent of our 
budget which is the non-defense, non-security discretionary 
budget, and yet every external expert, and many of us I think 
both Republican and Democrat on this committee, feel very 
strongly that everything has to be on the table. We took a vote 
in this committee while we were doing the budget and there was 
strong support, bipartisan support, for including Department of 
Defense in our call for greater efficiency, greater 
accountability in the use of public dollars, and in helping us 
to be able to reduce our deficit.
    And in fact, ignoring the Department of Defense budget and 
taking it out of this process, which as I understand it we 
often have done. You could have anything you want, no 
accountability for the way they spend the money and it has 
really hurt us and it will hurt us in the future if we ignore 
the Department of Defense.
    So to me it seems, and maybe this is unfair, but just 
completely unacceptable to not have the Department of Defense 
be a part of helping reduce the deficit. And what we are 
talking about is some of the things that Mr. Mosher you have 
talked about and Dr. Adams talked about, which is demanding 
greater efficiency in what they do and simply in procurement. 
Not simple, but in overhead. Do we need this many 
administrators? I mean do we need in the rank, in the 
Department of Defense how many supervisors do we need? How many 
senior officials do we need to be watching the store that 
actually still cannot tell us how many subcontractors they 
have? How many contractors they have? What they really spend on 
procurement. Can they not reduce their cost by one percent, two 
percent, three percent, four percent? Mr. Talent talked about 
wanting to shift that money into other ways of doing things. I 
think there is been some discussion about wanting to modernized 
our forces and modernize our purchasing of equipment. I think 
many of us agree with that. But my real question, two areas 
really simply is, we talked about some of it and asked Mr. 
Mosher, but about the efficiencies. Simply how can it not be 
possible to get greater efficiencies out of this large of a 
system, these many dollars, to demand that? And my second 
question, that may be for either Mr. Mosher or Dr. Adams to 
address very briefly the issue of health care costs. We have 
been very hesitant to go this direction because of our 
commitment to providing quality health care for our active 
military, but in fact we are calling on the entire health care 
system, certainly under Medicare and Medicaid, and maybe the 
private system too, to do greater efficiencies and to improve 
quality and coordination, and reduce costs in that way. Can we 
not do that in a system we actually have more control over, if 
anything, which is the military one? So, in one minute or less 
if you would just comment on those two areas that would be very 
helpful. Mr. Mosher.
    Mr. Mosher. Just very briefly, we did not analyze 
efficiency in our piece, and we have not looked at it 
carefully, but obviously there are always places to get 
efficiencies, but I would be hesitant to speak about the 
magnitude that you could get from them.
    As to health care, you know I think I have shown the growth 
and one of the points that I wanted to make when Mr. Flores was 
asking a question was one of the reasons you have seen such 
growth, well there have been two-fold, is that the military 
health care system, as other health plans that become more 
expensive, the military system for those who have a choice has 
seen a cheaper and cheaper option over time. So you have seen 
much more of people moving into the system, and just to give 
you an example, for retirees for example, that is the under 65 
retirees, according to DOD's numbers, their out-of-pocket 
expenses are about $900 a year for a family in that system. So 
let's say you pay your premium and then you are out-of-pocket 
as your co-pays. Co-pays have not really been adjusted since 
the early 1990s. And if you compare that to someone who has 
health care in the private sector, their out-of-pocket expenses 
are roughly $5,500 a year. So it is $900 versus $5,500; it is a 
factor of what you know six. That would be one way if you are 
trying to get the cost of the system under control, we would 
look at that sort of thing. CBO has done this annual volume 
every year that looks at options for reducing the budget and we 
have several options in there that look at health care as 
things you might do to try to control the cost of health care 
in DOD's system.
    Ms. Schwartz. I believe we are out of time. I do not know 
whether we would admit Dr. Adams to make a comment about the 
efficiencies would be great.
    Mr. Adams. Just two points Congresswoman. The efficiency 
question is usually subsumed in the phrase ``waste, fraud and 
abuse.'' There is not a line item in the Defense Department 
budget to call waste, fraud and abuse. It is in fact, an 
extraordinarily large infrastructure. Everything the US 
government does, anywhere that it does it, is done in the 
Department of Defense in miniature. Every function is performed 
in the Defense Department and we have created an unbelievably 
large infrastructure to do it. The infrastructure the Pentagon 
estimates is 42 percent of the budget. There are 340,000 people 
doing what are essentially commercial functions. There are 
560,000 uniformed forces who never deploy because they are 
involved in managing the infrastructure. We have probably the 
worst ``tooth-to-tail'' ratio in terms of combat forces at the 
point of the spear and infrastructure behind it of almost all 
the industrialized militaries in the world, according to 
McKinsey. It is a huge, huge problem.
    CBO, I think, in the report that Dave Mosher referred to, 
rightly targets infrastructure or rightly targets O&M as an 
area of concern because that is where most of this is buried. 
It is somewhere buried in the civilian payroll in O&M, which is 
40 percent of O&M. It is buried in the functions that they are 
doing and it is very hard to get your arms around it and so I 
encourage CBO to do more arm-getting-around in this subject 
because it will help us to decipher exactly what is going on 
here. But the rate of growth in O&M is about one-and-a-half to 
two-and-a-half percent per year whether you like it or not, and 
the only way that it comes down, and I think this is important 
to note, is the way budgets come down is they come down, which 
sounds just like a tautology, but the reality is when you set a 
lower budget level, it induces a level of efficiency. Usually 
efficiency does not happen bottom-up because people are used to 
doing business that way. When at the top the services say you 
will have less for base operating expenses, be more efficient, 
people find ways, and we did find this in the 1990s. One of the 
healthy effects of the build-down of the 1990s was that it in 
lowering the defense top line, choices had to be made. And the 
choices can be very efficient when they come from the top down 
so budget constraint and budget discipline is an important 
element in inducing efficiency and operations and lowering the 
infrastructure cost.
    Ms. Schwartz. Changing the culture. Thank you very much and 
thank you Mr. Chairman for your indulgence.
    Mr. Garrett. Thank you. The gentleman from South Carolina.
    Mr. Mulvaney. Thank you Mr. Chairman. That actually ties in 
to the question I was going to ask. Let's stay on this topic of 
the infrastructure and the efficiency because coming out of the 
private sector one of the first things I would try and do if I 
wanted to get my arms around any particular situation is try 
and get as much data as I could about it and in my world that 
might imply an audit and you heard the Ranking Member, and I 
think correctly so, identify the Department of Defense as 
either one of or the only major agency that has never been able 
to audit itself or have an audit performed on it. I think I 
have heard even that the Defense Department claims it is beyond 
an audit. That it is not able to be audited.
    And I guess my question to you gentlemen is should we 
tolerate that? And if the answer is no, because I think the 
answer should be no, how do we fix it? How do we at least start 
the process of fixing what we seem to recognize here as a 
problem without getting the information? How do we audit the 
Department of Defense? And I will throw that open to anybody.
    Mr. Mosher. Well, we are not auditors so I would not 
presume to tell you how you should audit them. We account the 
budget but we are not auditors. That would be GAO with probably 
the auditors. I mean I will say that on the O&M question that 
Mrs. Schwartz raised, one of the challenges is getting good 
data on O&M, and that Gordon raised. It is very difficult to 
get good data on Operations and Maintenance spending.
    Mr. Mulvaney. Why?
    Mr. Mosher. While we get the data that DOD provides to us. 
So I am not saying that it is impossible to get good data, I am 
saying that the data that we receive, that we the Congress 
receive on Operations and Maintenance is relatively limited and 
it makes it difficult to dig into the very complicated things 
that go on in the O&M account. One of the problems that we have 
and we have a study that we have released in, I believe, 
January where we looked at some of these issues but we had 
difficulty doing it in large part because once supplemental 
money is appropriated for the wars and when you start looking 
at what DOD has now actually spent on O&M, those moneys are 
comingled. So it is very difficult to separate what war effort 
money would be. That is the very legitimate things that you 
need to be doing to fund our soldiers and airmen and sailors 
overseas fighting wars to what DOD needs to do in its day-to-
day, in its base budget: activities it gets to get those forces 
ready, to train the forces, to develop weapons, and it is very 
difficult to separate those moneys once they have been 
commingled because DOD does not track it that way.
    We have some recommendations where we talk about some ways 
to do it but it is not about auditing, that is we did not take 
it that far. What we did is we looked at where additional 
money, additional information would help the Congress in trying 
to understand that O&M account. And just so you know, we are 
also doing a study at the request of the House Armed Services 
Committee where we are looking at how DOD models the 
requirements and how it comes up with its budget for Operations 
and Maintenance, operational readiness specifically. And so we 
have gone to all the services and we are in the process of 
doing that and should have something on that in the fall.
    Mr. Talent. I think the Department absolutely ought to be 
tasked to improve its auditing performance. Now I will just 
tell you, the O&M budget is not going to go down as long as we 
have an inventory that is this old because they have to spend 
the money to maintain it. I am sure that we can reduce some of 
the combat support, combat service support personnel. You do 
not have to have the guy in uniform taking the tickets at the 
movie theatre but then you are going to have to hire somebody 
privately to do it. Congress is going to have to authorize 
privatization by the way too.
    Mr. Mulvaney. Let me press you on this point because I 
think you and I generally philosophically would agree on a lot 
of things. As a conservative, how can I in good conscience even 
contemplate this four percent for freedom concept? How can I 
even contemplate plussing up any defense spending until I solve 
each and every one of the issues that Mr. Mosher just 
addressed? How can I in good conscience go to the tax payers 
and say listen I want to spend more money on defense when I do 
not have any clue how the money that we are spending now is 
being spent?
    Mr. Talent. Because there is a tremendous connection. In 
the first place, we ought to get the savings and that is what 
the Perry-Hadley Commission said, that is what Heritage says, 
that is what I say, and then you are going to have to devote it 
to recapitalizing the inventory and modernizing the accounts. 
If you do not, you are going to generate huge extra costs that 
are going to swallow anything that you have saved. And that is 
been the history of the last 15 years. We predicted in the 
1990s that the O&M accounts would go up precisely because of 
this; and while there is a connection between the economy and 
military preparedness, there is also a connection between 
military preparedness and the economy. If we are weak and are 
perceived as being weak around the world it increases the level 
of instability and risk which decreases economic growth. I gave 
an example in my testimony. The United States maintaining 
stability in the Northwest Pacific around the Korean Peninsula 
has prevented a war there for the last 60 years. How good has 
that been for the economy? And the increasing instability last 
year in the Western Pacific as China started throwing their 
weight around, was not good for economic growth. It caused a 
lot of issues among our allies. That is a hugely important part 
of the world. So you have to recognize the connections but yes, 
let's get the savings. What we are saying is realistically, 
there is a no way that Secretary Gates is talking about $15 
billion a year he hopes he can get. They have been trying to 
get this for 15 or 20 years. I would love to get that. It is 
not going to be enough to do everything we need to do. We do 
not even have a new bomber program plan and we are flying 50-
year-old bombers. Remember, decisions you are making now are 
going to affect what this force structure is 10 or 15 or 20 
years from now. Our guys are going to be flying 70-year-old 
bombers and that is not consistent with the United States 
protecting its security.
    Mr. Mulvaney. Mr. Adams I apologize I am out of time. I 
leave it to the discretion of the Chairman, but thank you 
gentlemen.
    Mr. Adams. Over to the Chair whether he wants me to answer 
or not. Briefly put, we believe that this begins with mission 
discipline and one of the things that is striking about the 
conversation so far is that there is not been much discussion 
about mission discipline in the Department of Defense. We 
recommended with the Rivlin-Domenici Panel that we take 100,000 
people out of the active duty force structure solely in 
infrastructure positions. Now, for those who then say well then 
you are going to have to hire contractors, you are going to get 
some civilian to do it because you are taking out of the combat 
force, no, it is linked to mission discipline. If we tell the 
military here are the things that are important, here are the 
priorities, here is the thing you are going to do, you are in 
fact going to need less infrastructure to do it, but my bottom 
line here is you start the process of eliciting the data you 
want by imposing budgetary discipline in the areas where you 
want that budgetary discipline imposed and O&M is one of the 
key areas to impose that discipline. So some of this has to 
happen through leadership, top-down decision, and mission 
discipline that says you are going to require less 
infrastructure to perform these missions.
    Mr. Garrett. Gentleman from New York.
    Mr. Tonko. Thank you Mr. Chair. Gentlemen, thank you for 
joining us. Senator Talent, have you been employed by or served 
as a partner in the Fleishman-Hillard or Mercury 
Communications?
    Mr. Talent. I was with Fleishman-Hillard and then there was 
a corporate reorganization and it became Mercury, which is the 
sister company in the Omnicom umbrella.
    Mr. Tonko. Because I have a release from Fleishman-Hillard 
that says the firm's area of focus is the defense and aerospace 
industry and by the firm's own description and I quote, ``We 
leverage our long-standing relationships with industry 
influences.'' And I assume with something like defense, those 
influences include us members of Congress, so the firm's stated 
aim here is to help defense industry firms and I quote, ``Win 
new programs and keep existing projects.'' So, Senator, is it 
as serving as an independent arbiter on the QDR Review Panel, 
is it fair to say that either through your work with Fleishman-
Hillard or with Mercury in the past that your job was to 
advance defense as an industry?
    Mr. Talent. No, not in that- We have defense clients. I 
offer strategic advice from time to time. I do not lobby. My 
views on this subject date back to 1993. Everything that I have 
said and done here is consistent with what I said and did 
entirely in my career including when I was in public life. So 
this is not something that I have come to lately when I took 
this position. Anybody who knows me knows that through three 
different administrations, Republican, Democrat, I have been 
consistently concerned about underfunding the military and I 
have criticized on a bipartisan basis, policies that I thought 
contributed to that.
    Mr. Tonko. And it would be fair to state, I believe, though 
that their efforts here are to advance new programs and keep 
existing projects that firm up investment in defense. With the 
acquisition of weapons systems having been the area of 
inefficiency and cost growth at the Pentagon, I would like to 
focus on in recent years that this area has been particularly 
egregious. The GAO recently estimated that acquisition costs 
for the Pentagon's major defense programs grew by some $300 
billion or 25 percent above initial estimates. The GAO cited 
two main reasons for that growth. First, that DOD's processes 
for funding programs create, and I quote, ``An unhealthy 
competition for funds that encourages sponsors of weapon system 
programs to pursue overly ambitious capabilities and to 
underestimate those costs.'' So we have a systemic problem that 
encourages private contractors to feed us technology of 
debatable utility for an unrealistic price.
    The second reason GAO cited for that phenomenal growth rate 
in acquisition costs is that the Pentagon's process for 
acquiring weapon systems allows, and again I quote, 
``Acquisition programs to proceed through key decision points 
without sufficiently reliable information on funding, schedule, 
and technology upon which to make sound decisions.'' So, I 
would ask the panel, do you agree with that assessment or do 
you think that recent reforms to DOD's acquisition system 
adequately address these causes? Mr. Mosher.
    Mr. Mosher. We have not looked at that, nor is that an area 
that we tend to examine, but Mr. Garrett you did ask a question 
earlier and I was remiss in saying that in our estimates in 
this work that we did, and the estimates we always do, we try 
use those cost growth figures to estimate what costs will be, 
and so we try to capture historical cost growth in the systems 
that we estimate but we have not done independent analysis of 
the causes of these sorts of things.
    Mr. Talent. I would say yes and no. Yes there is a problem 
with enacting either on the basis of not enough information. I 
would say though it is more a question of there are too many 
people trying to get the information and nobody's accountable. 
And no, they have not done enough to deal with it. On the issue 
of infrastructure and particularly personnel, as personnel 
costs have grown the chiefs in particular have made every 
effort to reduce the number of personnel in their services 
because they want to get the platforms, they do not want to pay 
for the people. In particular, the Air Force and the Navy, I 
think reduced too far which is why we now have a process for 
example where we have to cross deck sailors; sailors come in 
from one task force, or steaming in from one helicopter to go 
on another task force that is going out. They have had an 
incentive to try and reduce personnel and where they could do 
it, they have done it because they have been trying to protect 
other parts of the budget.
    Mr. Tonko. Thank you. Dr. Adams.
    Mr. Adams. The last part of the question is the one that I 
wanted to address, are the current forms likely to get a handle 
on the problem that you have described? And the honest answer 
is it is too early to tell. My analysis of those proposals is 
probably they are too weak to have such an impact. I see 
nothing in the data so far. GAO provides the most compelling 
data that we have on cost growth. Nothing in the present data 
suggests that the overall judgment that I have about the 
ability to control procurement costs has been fixed by any of 
the current procurement reforms. It is really tilting at a 
windmill because the incentive structure is wrong.
    Mr. Tonko. Thank you.
    Mr. Garrett. Mr. Ribble.
    Mr. Ribble. Thank you for your testimony today and Senator 
Talent this is a little surreal for me. Back in 1995, when you 
were Chairman of the Small Business Committee of the House 
side, I was sitting on that side giving testimony while you 
were at the chair. I would like to ask the same question to you 
and to Dr. Adams. One of the things that intrigues me is it 
seems a little bit like we are continuing to defend our country 
as if we are in the very close post-World War II era. We have 
tens of thousands, hundreds of thousands of troops stationed in 
safe harbor nations like Germany and Japan, and other places 
around the globe. Are those numbers appropriate given the speed 
in which we can move people about the globe and equipment?
    Mr. Talent. Well, the basis, first of all with regard to 
base closure. We did a number of rounds of domestic base 
closure. I voted for all of them and I am not sure you guys 
would know, I mean, have they actually determined that we saved 
any money? I do not know that we have because we have to invest 
upfront costs in closing a base. And the bases are there to 
help us get in and out of places. We could not have done what 
we have done in Iraq and Afghanistan without the bases, in 
Kuwait and Qatar. If we did not have the troops, or the bases, 
in Germany we would not have a place to evacuate the wounded. 
It is pathways in and out. So if you do not do that and I think 
we should be constantly looking at infrastructure, but 
understand that we are still going to have the ability to get 
in and out.
    Mr. Ribble. Yeah, and I am not really looking at 
infrastructure per say, I am looking at troop count.
    Mr. Talent. They have tried to reduce, in fact, have in 
Europe and in Korea, they have reduced footprints. I mean, 
again these are not people who have tried to have more 
personnel. This is why I simply dispute the idea they have not 
made hard choices. They have made a number of hard choices. I 
can submit you a huge list of them, I do not have time I guess 
to talk about it because they have been under increasing 
budgetary pressure. So you have to maintain the bases, or you 
have to substitute something for them. You can operate off the 
naval vessels, then you need a bigger Navy, or you need more 
cargo lift. Well you cannot shut down the C-17 line because you 
got to get the people and the power from here to there one way 
or another. So, it is not my sense that you are going to get a 
lot out of the foreign bases or reducing those footprints. It 
may be possible, and if you can, you should. I would love to 
tell you there is some silver bullet that you can get out of 
the rest of the budget, but the budget's O&M is going up. The 
budget's personnel, he just said that is going up, its overseas 
contingencies; maybe that will go down. Remember even if the 
draw-down in Afghanistan is successful and I certainly hope it 
is, we are going to go back to 60,000 to 70,000 troops, which 
is almost twice as many as we had when the President took over. 
And I am not saying he is wrong, in doing that. The idea we are 
not going to do counterinsurgency, I mean I do not know how you 
can draw that conclusion given what we have done the last 20 
years. That leaves procurement and modernization basically. So 
if you pressure them, it is got to come out of procurement and 
modernization, which is where it is come out of.
    One other point I want to make about the overall budget 
picture. Everything should be on the table. Defense has been a 
declining portion, both of the GDP and the federal budget, 
which is why I said in this statement, if you resolve the 
broader issues between the mismatch between revenue and 
entitlement programs, there is going to be enough money to pay 
for defense. If you do not, not funding these basic 
requirements, is not going to keep the government from going 
bankrupt. I think that is just a statement of fact.
    Mr. Ribble. Dr. Adams.
    Mr. Adams. Yeah, a couple of points to make. First off, in 
the work that we did for the Rivlin-Domenici Panel, we 
explicitly come to the question that you asked in the narrowest 
sense. That is to say there are areas where the United States 
has forward deployed forces where one can, I think, safely say 
those forces could be reduced, not eliminated but reduced. And 
Europe is the biggest one of them right now, at about somewhere 
between 80,000 and 100,000 depending on how you count Naval 
forces and you probably could bring that down to 20,000 or 
30,000 where you would be operating the health infrastructures 
at Ramstein and places where you need capacity because you are 
doing deployments elsewhere and not have the combat for forward 
deployed combat forces that you have there today. And in fact, 
the Defense Department's considering bringing a brigade combat 
team out of Europe, we would say two brigade combat teams could 
safely come out of Europe.
    The deployment in Asia, we also think could come down in 
terms of the ground forces, specifically. It is not a large 
presence but we would not bring it down as heavily as we would 
in Europe because the security situation is less certain in the 
Asian theatre than it is in the European theatre, but in ground 
forces terms we are unlikely to be using those ground forces in 
areas where we think they are deployed forward to be used, 
largely Korea. We are certainly not going to a ground war with 
China. So there is opportunity there. The reality in budgetary 
terms is, of course, is that you do not save any resources 
unless you bring down the size of the force structure to match. 
So if you actually bring forces down and a trip to force 
structures so you match the numbers that you have brought back, 
it may not be the same people, but it may come from somewhere 
else. You can easily do that.
    Let me address one other question that was raised or 
implied by your question, and that is this question of 
counterinsurgency. I want to come back to that because it is 
maybe the first time in this discussion so far that we have 
really addressed a strategic or military mission-related issue. 
And I think there is a very important argument that we put on 
the table here that we have not in fact been conducting major 
counterinsurgency operations for the last 20 years. We have 
been conducting them for the last 10 years in countries we did 
not invade because of insurgencies. We invaded those countries 
because we had a regime change prospect in mind. Explicitly 
that was policy. Remove Saddam Hussein, remove the Taliban. We 
inherited an insurgency in part stimulated by the capability 
they would put in there to remove a force in a country that did 
not have a fragile government. The reality is we are not going 
to fight insurgents around the world. We are going to choose 
where we fight. We are going to choose where we deploy forces. 
There are areas with major battles raging today we would not 
dream of deploying American military, Democratic Republic of 
Congo comes to mind for example. That we will not engage in 
counterinsurgency warfare on a global basis because no sensible 
president is going to decide that it is America's military 
mission to fight whatever an insurgent is, wherever he or she 
is, somewhere around the world.
    So it strikes us at least, and this is part of our 
strategic analysis for Rivlin-Domenici, that the 
counterinsurgency, nation-building, global policing role with 
ground forces in a lot of countries doing something called 
counterinsurgency is a very unlikely future mission for the 
American military. It is if you will the wrong lesson of Iraq 
and Afghanistan. We are unlikely to do 250,000 person 
deployments in a counterinsurgency mode somewhere else in the 
world.
    Mr. Ribble. Thank you. I yield back.
    Mr. Garrett. Mr. Yarmuth.
    Mr. Yarmuth. Thank you Mr. Chairman. Senator Talent I just 
want to follow up on the line of questioning that Mr. Tonko had 
started. This really is not about credibility but I am just 
confused about something because as you said, the views you 
expressed today have been long held views and this is somewhat 
of a chicken and egg situation but it goes to also kind of the 
revolving door that we have these days. I assume that one 
reason you are retained by the people who pay you is because 
you were, you held these views.
    Mr. Talent. No. The reason I was retained, not because of 
any specific view in any particular area of public policy, but 
because of a perception that I understood how the Congress 
operated and could give good strategic advice to clients who 
cared about that and very little of what I have done over the 
years has been related to defense. It is mostly in other areas, 
health care regulation, that sort of thing.
    Mr. Yarmuth. Well, and you tried to make a distinction. I 
just asked you to explain because to me it is a distinction 
without a difference. The fact that you are not lobbying but 
you are being paid for it.
    Mr. Talent. No I was just explaining what I do. And I felt 
the question went to what I do.
    Mr. Yarmuth. Okay, fine. Thank you very much. Again, your 
views are your views and I accept that.
    Mr. Talent. It really has gone back 20 years. And it is 
really, whatever else I have done, this has been very 
bipartisan to what I have said and I believe very strongly that 
the views that I hold are necessary to a successful foreign 
policy no matter what point of view you are coming from. I 
wrote an article in 2009, at great length about this, advising 
that these needs be taken care of in order to make the incoming 
president's foreign policy successful, and I bet that he wishes 
right now that he had increased in capabilities when he had 
that stimulus bill in front of him.
    Mr. Yarmuth. Well, that is water under the bridge 
unfortunately. Following up a little bit on the foreign 
presence that we have, and I know this differs from country to 
country, but I address this to you Mr. Mosher first. To what 
extent do foreign countries subsidize our presence there and is 
it a significant factor or not? And is that an opportunity 
perhaps to write the budget a little bit?
    Mr. Mosher. You know, this has obviously been a very 
difficult political issue for a long time. There was long 
debates about burden sharing within NATO, and in Japan, and you 
know there is also this problem that you are not asking, nor do 
you want to ask foreign governments to pay for our forces 
themselves. That would not be right. So it tends to boil down 
to infrastructure and you know paying for bases and paying for 
those. And there are varying degrees of support in different 
countries, and I said Japan and NATO being the most advanced, 
that is the most well-developed. You know, that ends up being a 
political decision that a president and a congress and another 
country has to make about supporting that arrangement, and you 
know every country is different. Yes, there are potentially 
some savings if you were to do it, but it is not going to solve 
our budget deficit problem.
    Mr. Yarmuth. Dr. Adams, you mentioned earlier in your 
prepared testimony that you would like to have the opportunity 
to discuss some other recommendations that the Quadrennial 
Commission had come up with ways we might do things. I will 
give you remainder of my time to talk about a few of those, if 
you want.
    Mr. Adams. Well, let me come back for a moment to this 
question of mission because I think a strategy driven 
conversation is in order at this point in our history. The 
major critique that I had of the Quadrennial Defense Review 
that we had and one of the major critiques that we had of the 
Perry-Hadley Commission was the real failure in both cases to 
say some threats are more likely than others. Some missions are 
more likely than others, and some elements of risk are more 
acceptable than others. Any good strategist will tell you that 
that calculated against resources is exactly what a strategist 
does. He says, what are we likely to do, what are we less 
likely to do, what is not likely to happen, how much do we 
really need to hedge? We have precious little guidance from 
either of those exercises to do that because both of them were 
consciously developed independently of any sense of limitations 
on resources. The consequence is really weighing, for example, 
what the likelihood of the use of combat forces is going to be 
in Europe, and what would one can then reduce the force in 
Europe as a result has not been done.
    The real weighing of the likelihood of a major ground 
warfare in Asia, has not been weighed. It will not happen 
against China, it would be mad to go into a ground war in 
China. It might happen in Korea, but the Korean capability that 
exists in South Korea is vastly different than what it was that 
we faced in 1950 when the North Koreans came across the 38th 
Parallel. Where you are going to face conventional forces? 
Where are we going to deploy 250,000 in a conventional mode? 
And if you start weighing the cases and saying, is it Iran? 
Unlikely. Is it Pakistan? 160 angry Pakistanis coming at our 
military force is not a prospect I think anybody would lightly 
weigh. You begin to run out of cases. You begin to run out of 
scenarios for major combat deployments of American forces, and 
that does not mean you reduce American combat capabilities to 
zero. That is not what we are talking about. It is an 
appropriate hedge to then rethink how much you need in the 
ground force, how much of it is active duty, how much of it is 
reserve, how much you exercise it, where you exercise it, and 
how you are likely to use it. And you do a similar analysis in 
any mission area that you think is important to American 
national security. What is the global steaming tempo of the 
United States Navy? What need it be? What should it be?
    We have managed to retain global naval superiority for the 
last 60 or 70 years, even with a shrinking Navy. In large part 
because no other country is as crazy as we are to develop as 
large a Navy as we have. So we have the globally dominant Navy, 
even at its current size. There is no other Navy that comes 
close, and no Navy within reach within decades. No country that 
even looks like it has the intentions of going to that length. 
So if your mission area is global presence at sea, we have and 
still have and would have in the future global presence at sea.
    I have already mentioned my own views with respect to 
counterinsurgency nation-building exercises in the military. We 
are structuring, exercising, forming, training our military 
today in pursuit of DOD Directive 3000.05 and the 24 Doctrine 
from the United States Army as if we were going to pursue major 
large-scale insurgency operations on a global basis. If we look 
at the global scenario, we do not see that as a likely exercise 
of American military forces, nay if anything it is not likely 
to be well received given the experiences that we have had in 
Iraq and Afghanistan.
    So you set priorities among missions. We think dealing with 
terrorists organizations, particularly the global Al-Qaeda 
network is a key priority. Does it demand a large ground force? 
No. We specifically tailor our forces and we use largely 
Special Forces for that threat to deal with the kinetic edge of 
what is a broad problem of law enforcement, finances, and 
military operations, and governance stability in other 
countries, and so on through the chart. In other words in each 
area a hardnosed analysis that says, what is the threat, what 
is the issue, what is the real risk, what are the tools we use, 
and how do we calculate that risk? It leads you to a strategist 
answer which is some risks are more acceptable than others, and 
it leads us to the conclusion that on almost all areas that I 
can think of, 10 years out and a trillion dollars less than the 
more than $6.5 trillion currently projected, we still have a 
globally dominant military in every threat area I can imagine.
    Mr. Talent. Mr. Chairman, this is the third or fourth time 
that my good friend and colleague on this panel has criticized 
Perry-Hadley. Nobody is asked me for a response to that. Am I 
going to have an opportunity? I feel Bill Perry and Steve 
Hadley would be very upset if I do not say something.
    Mr. Lankford [presiding]. Let me do this. Senator Talent, I 
do concur on that one. I am going to put us back on schedule 
with a five minute clock on it just for all those future that 
are coming up behind because we are bumping up against noon in 
a hurry, and I know several schedules are against that. I have 
the first series of questions at this point, and I will defer 
to you to begin my time and we will honor with the five minute 
time limit.
    Mr. Talent. And I will try and do it quickly. Look, we did 
a strategic analysis. The whole first chapter was about a grand 
strategy because you do define what you need in terms of 
defense, in terms of what your foreign policy objectives are. 
So we set forth what we thought the enduring national interest 
and objectives of the United States were based on the strategic 
habits on a bipartisan basis of the presidents of the last four 
years, identified the five threats, and decided what force 
structure would be necessary to meet them. We knew we were 
resource constrained. The force structure we recommended 
specifically says, look it would be nice to increase the size 
of the Army and the Marines, but that is not the top priority. 
The top priority is increasing the size of the Navy and 
recapitalizing the whole force. This is specific understanding 
that resources are not unlimited.
    Now, Mr. Adams, with his usual eloquence and civility talks 
about the strategic analysis they have done instead of math. 
Later on you heard him, though, and what he said described what 
strategic analysis really is. Which is basically, look, tell 
them what their budget ceiling is, subject them to some pain, 
and force them to make some hard choices. In other words, it is 
a budget-driven type process. Now he talked about risks that 
are extremely unlikely. What you are seeing with that analysis 
is two things that happen all the time. One, an assumption, and 
we're not talking about it very much, is just assuming risks 
away. You are going to say we are not going to have to do 
counter-insurrection again, put a large number of troops on the 
ground. Exactly what they said in the 1990s. They cut the force 
then, we had to put them on the ground, and it created a huge 
number of costs.
    The other is the assumption that you know more than you 
know throughout the planning horizon. We are talking about 
planning 10, 20 years down the road. The world is an unstable 
place. So yes, you have to be resource constrained, but you 
have to understand what you do not know and as Secretary 
Rumsfeld said one time, ``What the unknown unknowns are, as 
well.'' And I thank you for giving me the opportunity.
    Mr. Lankford. No, I understand. A well equipped military 
personnel as far as a well trained becomes a large part of our 
edge worldwide and has been in many of our conflicts.
    Mr. Talent. We tend to get hit where we are not prepared.
    Mr. Lankford. Yeah, I understand. That is part of the 
frustration that weapons procurement systems, that where we 
tend to see large cost overruns at times. There is also a 
balance of experimenting we know with a new drug being formed. 
Sometimes they go down a long way and it ends up being a dead 
end and it does not work and they lose a lot of money in the 
process. It is just very painful when we do that in the public 
eye with the modernization system. We also have a frustration 
right now with the number of times that Guard and Reserve 
members are headed back a third or fourth tour, the way we have 
cut back on active duty and now we are very dependent on a very 
protracted that we did not expect 10 years ago that now we are 
deeply into and we have people that have private lives as well 
as public service in that, and that are being asked to serve 
again and again and again in these different tours.
    Let me come back to a couple of questions on this in the 
two minutes that I have. How do we create some incentives for 
efficiency? We have talked about it several times. Whether it 
be in modernizing weapons and procurement systems, give me a 
one-two of the low hanging fruit of how we create an incentive 
for efficiencies in some of these systems. Type of contract, 
way the contract is overseen, the frequency of contracts, 
whatever it may be. Anyone can jump in but they need to be 
brief.
    Mr. Talent. Look, I think that the people response over the 
top and they have their weapons programs that they like, and 
you have to exercise control because like the Air Force always 
wants fighters. Does not mean that you do not need fighters, 
but I think they have an incentive. I mean they want the cost 
overruns because it undermines the credibility of the program, 
and means they can buy fewer platforms and have fewer programs. 
But I think what they are failing to do, and I have said this 
several times, I do not think anybody here is really 
disagreeing with this either, they are failing to establish 
clear chains of command empowering people in line management, 
and then giving them the responsibility and the authority to 
keep these programs on budget and on time. The other thing is 
they are trying to get too much capability in many cases with 
platforms. Instead of settling for something incremental and 
getting it out into the field.
    Mr. Lankford. Dr. Adams. Can I ask you a quick question as 
well? You referred earlier to a private versus commercial that 
you are saying that there are some folks that are military 
uniformed that should be more commercial, I think was the term 
that you used on that. Can you expand on that some?
    Mr. Adams. They are performing essentially commercial 
functions, that is to say, they are doing things that you would 
do in the private sector in the economy rather than things that 
you would do in the Department of Defense. The answer to that 
is not necessarily, however to convert 100,000 people to 
private sector entrepreneurs because as I said earlier, it is 
mission related. You can shrink the entire infrastructure, and 
that would be one place to target in shrinking the entire 
industry.
    Mr. Lankford. You are saying take that task, not say, 10 
people did it, the military needs to be 10 people over here, 
but that task needs to be pushed over and they would bid it out 
for a cheaper amount.
    Mr. Adams. Exactly. It is not necessarily, the argument is 
not necessarily one for privatization. It is some of those 
functions when you have shrunk the mission set and focused on 
the risks is you may not require a lot of those functions to be 
performed.
    Mr. Lankford. Okay. Thank you very much. Mr. Ryan. You are 
recognized for five minutes.
    Mr. Ryan of Ohio. Thank you Mr. Chairman. So Mr. Talent, 
Senator. I was interested in what you were saying, the military 
equals stability which equals economic growth, and for example, 
up in the North Korea region. One of the issues I know I have, 
and I think a lot of people on this Committee have, and I think 
a lot of people in the country have, is they see us spending 
hundreds and hundreds of billions of dollars in the military, 
and compared to 30 or 40 years ago, and industrial towns like 
the one I come from in Youngstown, Ohio, and throughout the 
industrial Midwest, we seem to be seeing less and less of that 
money being spent and driven back into the economy of the 
United States.
    Mr. Talent. Right.
    Mr. Ryan of Ohio. And not only, as I think Mr. Mulvaney 
said about auditing, it seems like you are even saying that $10 
to $15 billion a year would be great if we could get to that 
number in savings.
    So I have two issues, one is we are spending a lot of this 
military money in the Northwest Pacific area as you stated and 
now we are going to sign trade agreements with South Korea. We 
have huge globalization, which has put thousands of Americans 
out of work, and yet those people are still paying taxes to 
fund the military, to have the economic stability, so that we 
can have a global economy, although it is kept their wages 
stagnant for 30 years. So there is a level of frustration in 
the country when we are spending all of this money and we are 
not seeing it driven back into the manufacturing defense 
industrial base in the United States of America. So four 
percent of the GDP is a big number, but many of us here 
advocate for increases in transportation for example, where we 
are at one maybe two percent of the GDP, when China and India 
are at nine or 10 or 11 percent of their GDP. And back in the 
day, we were at eight, nine percent of our GDP. So we need to 
figure out how we are going to one, get this money driven back 
in the United States because we are also advocating for 
transportation and that puts our building trades right back to 
work. How do we go about doing that? How do we figure out how 
we start bringing some of this economic stability to benefit 
average people in Youngstown, Ohio?
    Mr. Talent. I agree. I was a huge advocate for 
infrastructure, by the way, when I was on your side of the 
table. And I think when you have a debt problem, you have to do 
two things. You have to decide where you do not want to spend, 
and you have to decide where you do continue to need to spend 
in order to support the economy so that you can get out of the 
debt situation.
    Mr. Ryan of Ohio. You believe investments should be made?
    Mr. Talent. Yeah, exactly. I think, part of the problem 
here is that when you have hugely increased deployments, which 
we have had the last 20 years, you have a reduced force in 
terms of number of personnel. You are not buying the platforms, 
the equipment, you know the ship's planes that they need, and 
you are not modernizing. You get huge amounts of stress which 
costs money. This is basically the reason that the Operation 
and Maintenance budget has gone up and then that has deprived 
procurement and modernization of the funding that it needs. And 
I think we are all in agreement that that is a problem, we have 
different opinions about how it happened and what we should do 
about it.
    One of the things I used to say all the time when I was in 
your position and people would ask me, what do we do for 
manufacturing and manufacturing jobs? I said, well one 
consensus thing I think it could be a robust defense 
manufacturing base.
    Mr. Ryan of Ohio. Yeah, we all agree with that, but that is 
not the case. These companies take a lot of their work 
offshore. They are spending a lot of money in other countries. 
The Berry Amendment has got a loophole so big you can you know 
drive an Abrams tank through it, and you know, it is just this 
problem that we have been having. I know the nine years I have 
been here, I have been trying to deal with it, and it is going 
to be very difficult for anybody to advocate for four percent 
of the GDP being spent on the defense industrial base when we 
know that money is not going into RTI Titanium in Niles, Ohio. 
It is going to a Russian company for example. And these 
examples are you know everywhere, so you know I think we have 
got to clear that up.
    And the second point I would just like to make and have you 
give a brief comment on it because we only have 30 seconds. It 
seems to me the people making the money in the United States, 
the big corporations who benefit from this military investment 
and stabilization, I believe should be helping us pay for these 
investments. And I do not think it is a big sacrifice to say go 
back to the Clinton Era levels for the top one percent who will 
benefit from this military investment, who will benefit from 
the economic stability, and who will benefit from the global 
trade. Quickly if you can.
    Mr. Talent. Look, I am here to talk about defense issues; I 
have my opinion about other fiscal policies. Heritage has 
written a lot about the tax situation. I would say to you, I 
will take the Heritage and the panel hat off and just say as 
Jim Talent, I mean my concern about the tax situation is that 
what we all want is more tax revenue but that does not 
necessarily mean higher tax rates. And there is a link between 
the rate of taxation, and the actual economic growth. I mean, I 
know there is an awful lot of research, I'm going into 
dangerous waters here because I am certainly not an expert, 
that shows no matter what you do with the tax system you get 
what about 18.5 percent of the GDP in revenue to the 
government. So if you increase taxes, the danger is you do not 
get higher revenue, and you do get fewer jobs.
    Mr. Ryan of Ohio. I would just say it seems like there is a 
major service being provided here for multinational 
corporations that take advantage of these sea lanes and the 
protection of the United States Navy and the stability that is 
provided in Asia. That is a service that the government's 
providing, and I believe it is not you know inappropriate for 
us to ask them to help us continue this policy.
    Mr. Talent. Well, we can agree that everybody ought to pay 
their fare share. Thank you.
    Mr. Ryan of Ohio. Then we are in agreement.
    Mr. Lankford. Thank you. Mr. Young recognized for five 
minutes.
    Mr. Young. First, thank you to all our panelists and the 
fascinating discussion here and as a member of not just the 
Budget Committee but the Armed Services Committee let me share 
with you the perspective of a freshman member of Congress. 
Within days of being sworn in, you can imagine we are asked to 
make all manner of different platform sort of decisions. 
Expeditionary fighting vehicle, fund or defund. If you are 
going to fund, do you decrease the funding?
    Next decision, you know, two engines or one engine for this 
aircraft platform? Next decision, there is no strategic context 
to so many of these decisions articulated by the 
Administration. This is not meant to be partisan. These 
challenges go back a number of years, a number of 
administrations. We have to find some way out of this. Now, 
both Senator Talent and Dr. Adams to your credit, I think did 
discuss the strategic implications of investing more or 
investing less in our military. I wish our Administration could 
articulate the same sorts of things and I would like perhaps a 
discussion for another day to get into some of the mission 
discipline concerns or perhaps we need less discipline. I think 
there are probably intelligent and intelligible arguments that 
say, no we are not committed enough in certain areas, we need 
to invest further. I am frankly open to both arguments, but 
they need to be made, and the Administration is just not doing 
it.
    Now, there is a $400 billion defense savings initiative 
that our current President has launched, and Dr. Adams, I saw 
you quoted recently, perhaps out of context, we know how that 
happens around here, but quote, ``This review is going too fast 
to mean something,'' is what the press indicated you had said. 
And I share those concerns that perhaps it is going too fast to 
very critically look at what our grand strategy should be as a 
country. What our role should be in the world. That, of course, 
should drive what missions we are asking our military to 
perform, then prioritize each of those respective missions. 
That, in turn, should drive our force structure, our R&D 
decisions. Along the way let's cut out the waste and 
inefficiency, there are certainly opportunities to do so and I 
am open to that. The question is this, how absent choosing some 
dollar figure $400 billion of cuts to enforce some discipline 
on our bureaucracy. Absent that, how can we get the Pentagon, 
the Administration to articulate what our role should be in the 
world and all the other things that fall beneath? Do we need to 
scrap the QDR and replace it with something else? Do we need to 
just improve the QDR or are we left with this very 
uncomfortable situation where we are asking managers of our 
military, of our Pentagon, to manage down to a dollar figure? 
Something I am entirely comfortable doing, frankly, in the 
USDA, but less comfortable doing in DOD. I will give Dr. Adams 
about two minutes to answer that, followed by Senator Talent.
    Mr. Adams. Happy to take a crack at it. It is a very big, 
and I think very important question. We, over the past 30 or 40 
years, and particularly over the past 20, have basically 
allowed administration after administration, whether it is 
Democrat or Republican, to get away with having the Department 
of Defense be the primary strategic planner for the United 
States government when it comes to our international 
engagement. It is quite stunning when you think about it. Until 
this past year there has not been a strategic planning document 
of any kind from the Department of State to the Agency of 
International Development, and while there is been a national 
security strategy from the White House, it has followed, most 
of the time, the Defense Department's strategic planning 
document, not preceded it. So, we have allowed it to happen, 
and just as a bracket I want to say it so that Senator Talent 
does not think I disagree with him on everything, I think while 
I disagreed with the content, the strategic planning document 
that the Bush White House did, the first one they did, was a 
masterpiece of strategic thinking. It was actually quite good. 
I disagreed with its thrust, but they actually prioritized what 
they thought was important and de-prioritized what they thought 
was less important.
    Mr. Talent. Which Bush White House?
    Mr. Adams. The Bush White House. The second Bush White 
House.
    The other part as I said in my earlier remarks, I am not 
sure whether you were here yet or not, Congressman, was that 
resources and strategy are always related. So strategy wears a 
dollar sign as Bernard Brodie said, it is always resource-
constrained, so you plan with that knowledge in mind. You do 
not plan with it absent from your mind. You know, therefore, 
that you can never reduce risk everywhere all the time to zero. 
You have to prioritize your risks and capabilities.
    Mr. Young. Mr. Chairman if I can have 30 seconds to allow 
Senator Talent to respond.
    Mr. Talent. Look, I agree very much with what you are 
saying. I think this is something Gordon and I agree on. The 
lack of strategic clarity, I wrote a huge article on this, the 
lack of direction from the highest level of civilian authority 
since the Cold War ended through now, almost four presidents, 
is extremely frustrating. What we had doing the Perry-Hadley 
Commission is to look at what they had actually done from 
administration to administration and deduce from that the 
strategic, what we call the strategic habits of the United 
States, and to deduce from that the interests and objectives 
that we needed to defend.
    Mr. Young. I guess the counterpoint would be, should those 
habits change, and I look forward to that robust dialogue.
    Mr. Talent. I do not think DOD is hungering to do 
deployments out there. That has never been. They really want 
the deployments reduced. It is, and I agree with him also, with 
Gordon also, it is been a default thing because we have not 
planned, and we have not had clarity. We have sent troops in 
because we do not prepare anything else, so look I agree very 
much with that comment and I think a hearing on that would be 
great.
    Mr. Young. Great, thank you.
    Mr. Lankford. Recognize Ms. Kaptur for five minutes.
    Ms. Kaptur. Thank you Mr. Chairman, gentlemen welcome and I 
want to associate myself with Mr. Amash's remarks. There are 
discussions going on inside DOD right now about, well, in terms 
of threat levels, what is the role of the Marine Corps in the 
21st Century? I think that a hearing on their perceptions of 
the threat and then following suit on systems makes a great 
deal of sense because often systems seem to lead us rather than 
a connection to the threat level.
    I also want to associate myself with Mr. Ryan's remarks in 
terms of outsourcing with the F-35 and the amount we are going 
to expend on that. I just returned from Italy, visiting some of 
our bases there, and the amount of outsourcing that is going to 
go on in that is incredible.
    And so those of us who represent states where DOD is 
closing facilities, whether it is the dual sourcing on engines 
for the F-35, or whether it is the expeditionary fighting 
vehicle, Ohio is hit very hard by that. So, I am very much for 
production in this country and also very concerned about what I 
have learned in my career on contractors and the amount that 
that is costing us and getting a straight answer out of DOD on 
how much more we are spending because of this growing reliance 
on contractors as opposed to in-sourcing. I hope in your 
research you will focus on some of that because I think each of 
you is really providing the country with a great service.
    I just wanted to say I heard a number yesterday that if we 
reduced unemployment to seven percent, we would cut our deficit 
in half. That is an astounding number and I want to focus my 
remaining short time on those in the military who are returning 
to us who have no jobs. It is a staggering figure. The post-9/
11 veterans, according to data from May of this year, shows the 
unemployment rate was 12.1 percent, for younger male veterans 
aged 18 to 24, 26.9 percent and they are coming back to places 
like I represent where the unemployment rate has been way over 
the national average.
    The suicide rate corresponds to what is happening there, 
with what they are facing with the foreclosure rate and so 
forth in our parts of the country are truly very difficult.
    And so my question to you really has to do with, we are 
wasting an enormous amount of human capital in these returning 
veterans. And how would we better position these returning vets 
in readjustment to capture their talents and to get them 
reemployed? In the work that you are doing, especially where 
they are coming back in the economically distressed areas, how 
can we leverage the skills of our returning service members to 
improve outcomes for them who have served us, and to gain 
useful assets for our country and providing a better outcome 
across the board? It seems DOD drops them and the VA does not 
really completely pick them up. What do we do in order to 
reduce this unemployment level and focus on this large pool of 
232,000 veterans, a quarter of a million veterans just since 
post-9/11, that are out there unemployed?
    Mr. Adams. Let me take a first crack at that Congressman. 
It is a very important question. The issue for me has always 
come down to push versus pull. There are obviously government 
programs that we can do that help people try to adjust, 
transfer skills, move into employment and so on. That is a push 
side. My sense, though, is that the history of base closures, 
which is a proxy here for what I am about to say, is that the 
demonstrated evidence from base closures is the most successful 
transition for communities and institutions and businesses and 
people who work in communities when a base closes, is the 
health of the local economy. The best thing that we can do, in 
my judgment, to get people like that employed and use their 
skills is if we focus on restoring the health of the American 
economy because that is going to create the context in which 
employers want to hire them, have money that they can hire them 
with, they are going to provide them with opportunities. So you 
need both a push and a pull approach.
    Ms. Kaptur. I hear what you are saying, but it is not 
working fast enough.
    Mr. Adams. Right, I understand that.
    Ms. Kaptur. Right, and it is a real problem.
    Mr. Adams. Understood.
    Ms. Kaptur. In communities across this country.
    Mr. Talent. A concrete suggestion. DOD is, I assume they 
are doing because they are supposed to do when Veterans leave, 
an examination of their baseline medical condition. They are 
supposed to do that when they come in and then also when they 
leave, almost an exit type of thing. Now, that is an 
opportunity, and I would think you might be able to do this at 
very little cost, to sort of expand that to talk to them about 
their employment profile, their ambitions, their skills, et 
cetera, so that you get that. I do not think DOD should 
continue, so then you need to hand that off either to VA or 
Labor, and you have got a good profile there and some guidance 
for that individual, and some opportunity. So you may want to 
ask what DOD is doing when people leave. What they ask, what 
kind of suggestions they make to them, because they have got 
them at that point.
    Ms. Kaptur. Well if I use their medical exam as any 
indicator of how we should deal with unemployment and 
reemployment of these Vets, I would not want to trust DOD on 
it.
    Mr. Talent. Yeah, I worked on that issue with Senator 
Clinton; it has is been like four years, so I am not aware but 
they are supposed to be doing that better, but you asked, and 
that was the only concrete suggestion I had.
    Mr. Kaptur. Right, I know that my time is up but I just 
wanted to say I hope I have sensitized you to this issue. It is 
a serious, serious problem, and I can also say Mr. Chairman, in 
closing that for instance if they try to go to community 
colleges to use their GI benefits, there are many of them they 
cannot concentrate in normal classes. This subset of our 
society, this is the new America. They are coming home to us 
and they are out there. They are alone many times. They do not 
group like the World War II vets. They are in our homeless 
shelters. They are in our food lines. This is not the way to 
treat America's returning vets. Some group of intelligent 
people has to help us keep a focus on this subset of our 
population. Thank you.
    Mr. Lankford. Thank you. Dr. Adams I know that you have an 
appointment that is coming up soon. You feel free to be able to 
step out when you need to. We had asked you to be able to stay 
through noon and obviously it is ten after at this, point.
    Mr. Adams. Right. I am going to have to leave shortly, 
thank you.
    Mr. Lankford. If you need to be able to slip out, feel free 
to be able to do that. We are glad to be able to have you and 
your time. I recognize Mr. McClintock for five minutes.
    Mr. McClintock. Thank you. I am afraid I had to miss the 
last hour so if you have already covered this just tell me so 
and we will move on. I agree with Ronald Reagan that Defense is 
not a budget issue. You spend what you need to spend in order 
to defend your country. If you fail to do that you end up 
without a country, but that does not mean that you spend more 
than you need to spend. So if I could ask Mr. Talent and Mr. 
Adams just in a minute's overview, what do we need that we do 
not have and what do we not need that we do have?
    Mr. Adams. I have offered at some sense I think in the 
hearing so far of what I think we do not need and can probably 
do without and safely build down to, given the fact that as I 
said earlier, 10 years out and 15 percent fewer resources we 
will still have the world's dominant military. Now there are a 
lot of specific inside that about that I would recommend some 
things up and some things down, but I think that is dominant. 
It is interesting though that you do cite President Reagan 
because President Reagan did have that view, and when Gramm-
Rudman-Hollings passed, he learned that indeed Defense is in 
part a resource issue. That resources do constrain our 
defenses, and the history that we had of 1985 to 1998 was that 
our defense resources, along with most federal spending, went 
down as part of the Gramm-Rudman-Hollings and then Budget 
Enforcement Act Deficit Reduction exercise.
    Mr. McClintock. Mr. Adams, actually I agreed with your 
earlier analysis which is you do not set a budget number and 
then figure out what you can buy with it, you figure out what 
you need and then adjust your budget number to meet those 
needs.
    Mr. Adams. Well I think you actually do both, it is 
interactive. Strategy wears a dollar sign as I said earlier.
    Mr. McClintock. Mr. Talent any thoughts?
    Mr. Talent. Well, look, on a very practical level. What I 
have recommended is we have increase the size of the Navy. It 
is about 285 now, it is headed down because there is a 30 year 
average life of the ships, and we are buying six or seven a 
year, and you can figure out that means we are going down.
    Now the Perry-Hadley Panel recommended the Bottom-up Review 
force structure, this came out in 1993, I think it was 340 
ships or so, and to increase ship building and try and get us 
up to there. That was the force structure. It Les Aspin's force 
structure, that the government thought we needed in the 1990s. 
This was before the global war against terrorism or whatever it 
is you want to call it.
    So I think increasing the size of the Navy and then 
recapitalizing the equipment in the rest of the force because 
it is impossible to have an Armed Services where people are 
flying or driving and trying to maintain and keep in place you 
know inventories that are 30, 40, 50, 60, 70 years old, and 
that is what is driving up your O&M costs. So I would just say 
this, you mentioned Reagan, an investment, getting that done as 
quickly as possible is going to save you money, and not doing 
it is going to cost you more money, and that is the history 
really of the last 50 years.
    Mr. McClintock. Let me ask you a couple questions been 
bothering me about you know what we are paying for that we 
probably do not need, and one of them that screams out is why 
we are paying to defend Europe from the Soviet Union 20 years 
after the Soviet Union seized to exist?
    Mr. Talent. We should not be, it is my view, we should not 
be maintaining commitments abroad primarily to serve somebody 
else. This should be designed to protect America's vital 
interest. Now, the Perry-Hadley Commission recognized four 
enduring national interests we need to defend. One is defense 
of the homeland, which is increasingly a challenge in an age of 
asymmetric weapons. Second is freedom of the commons, you know 
the air, the sea, the space, all directly related to our 
economy and our quality of life. Preservation of an acceptable, 
non-totalitarian balance of power in the Eurasian space, and if 
you look at where we have been involved in the last really 60 
years, but in the last 20 years, I mean look at it; it is from 
Korea, the Western Pacific, Southern Asia, et cetera because of 
a sense if that spins out of control somehow it is going to 
affect the American security negatively. And then a fourth was, 
the provision of a kind of humanitarian sort of goods to 
people, at least participating in a delivery system.
    Mr. McClintock. Is that not Europe's responsibility with 
respect to Europe and its area of influence and interest?
    Mr. Talent. Look, I do not believe, personally, I think we 
can discuss what the European Allies ought to be doing that 
they are not doing. And this question came up, how do we get 
the Allies to take more of a burden; yes it would be great. But 
the precondition to that is a belief that the United States is 
going to remain committed. Because if we do not remain 
committed and we are not showing leadership, they are much less 
likely to step up than they are to try and come to a deal with 
the Russians, who invaded Georgia two years ago.
    Mr. McClintock. I cannot get to this final question but I 
would appreciate your directing me where I can get more 
information on it, and that is a subject that you brought up, 
procurement. How is it that we end up ordering new weapon 
systems without setting aside the dollars necessary, not only 
to meet our needs but also to assure that we can obtain these 
copies at an affordable per copy price?
    Mr. Talent. Yeah, because as all of us I think agree, the 
procurement system is in many respects screwed up. And I would, 
on this subject certainly, I would advise to the members of the 
Committee that they take the time to read the chapter in here. 
I do not think the chapter on procurement reform is one that 
anybody would disagree with on a philosophical point of view, 
and I thought it was very powerful, and I really did not have 
any hand in it. It was the people on the panel who had done 
this, I mean really savvy type veteran of the system, and it 
sure makes a lot of sense to me and that is one of the things, 
I think, we are all in agreement, we need to do and do as 
quickly as possible.
    Mr. Lankford. Thank you. Gentlelady from Florida is 
recognized for five minutes.
    Ms. Wasserman Schultz. Thank you Mr. Chairman. We have 
heard in this committee over the last number of months, many of 
our Republican colleagues espoused the need to slash 
discretionary spending, and Medicare as we know it and direct 
some pretty painful cuts. Knowing that 60 percent of our 
discretionary budget goes to the Defense Department, if we 
couch Defense as a sacred cow that is untouchable, then 
everything is a sacred cow because Senator Talent you have 
criticized the president for proposing for $400 billion in 
defense cuts, and I think you said at the time, that defense 
spending is not the cause of our deficits and those cuts would 
not make a large difference in reducing the deficit.
    Mr. Talent. I think I said it was fantasy to propose that.
    Ms. Wasserman Schultz. Okay. So that is even stronger.
    Mr. Talent. Right. If I did not say that, I said it in the 
first draft and then took it out later.
    Ms. Wasserman Schultz. You are underscoring what I am 
suggesting that you said, rather than running from it. The 
defense budget makes up one-fifth of the entire federal budget, 
and I mean we have got bipartisan consensus that we are going 
to have to put sacred cows on the table in order to make a dent 
in the deficit. By your logic, would you argue that non-defense 
discretionary spending should also be excluded from a deficit 
reduction because that is even less, that is even more of a 
drop in the bucket and further, let me finish my question 
please.
    Mr. Talent. Oh, I am sorry.
    Ms. Wasserman Schultz. By the same logic, conversely would 
you argue that more revenues should be part of the solution 
because that is an area in which we can, if significance, in 
terms of the impact on deficit reduction is your marker, it 
would seem to me that you should be for putting revenue on the 
table and for making sure that we can address this effort in a 
significant way. And against things that are not significant, 
like slashing indiscriminately non-discretionary, discretionary 
non-defense revenue, which like you said is a drop in the 
bucket.
    Mr. Talent. All right. I thank you, and I am sorry to 
interrupt, and by the way, before the hearing closes I want to 
apologize to Mr. Van Hollen because I insisted on giving him 
more answer than he gave me question on a couple of points.
    Ms. Wasserman Schultz. Your apology is cutting into my five 
minutes, so if you would.
    Mr. Talent. I keep forgetting how disciplined you are. On 
defense, my concern here is that if you underfund basic 
capabilities that are needed to deal with risks that are not 
going to go away, you end up causing a whole lot more in 
expenditures than you save. I think a classic example, is when 
the government cut the size of the Army in 1990s in the belief, 
which I think was a budget driven belief, that we would not 
have to put large numbers of troops on the ground, it meant 
that we could not prosecute the Afghanistan and Iraq-
    Ms. Wasserman Schultz. So let me just ask you, so your 
point was not that we should not touch defense, we just should 
not indiscriminately touch it.
    Mr. Talent. Right, and we should put the savings back into 
things that we do need.
    Ms. Wasserman Schultz. So the criticism of the President's 
$400 billion in proposed cuts is not general criticism? Was it 
specific to what he was proposing to cut?
    Mr. Talent. Well, he did not say what he was proposing. I 
am prefer the President's approach of the last several years 
because a part of this, to be frank, is the President arguing 
with himself, because his own Administration proposed, at least 
modest real increases in the defense budget until that speech. 
And he has not been specific about what he wants to do. I have 
no problem with finding savings but I do not want to cut the 
top line. Find the savings, and then put into the things that 
we need to put it in to.
    Ms. Wasserman Schultz. But you would retreat from your 
statement, that we should not touch defense because it just 
does not cause the deficit; it is not a significant impact on 
the deficit and so therefore it should be untouchable.
    Mr. Talent. With respect, I never said defense was 
untouchable. I said the savings that we can achieve in defense 
we should put back into things that we need more within the 
department's budget.
    Ms. Wasserman Schultz. That is not what I have you on the 
record as saying, from what I understand. But let me just ask 
Mr. Mosher a question. We are spending nearly $50 billion a 
year on military retirement benefits, and if we look, direct 
your attention to that chart up there, there have been a lot of 
defense analysts secluding the conclusions of the Quadrennial 
Review of Military Compensation, who criticized the current 
system as not being fair or efficient. You can only collect 
military retirement benefits, unless you are disabled, after 
serving 20 years. That means that most of the individuals 
deployed to Iraq and Afghanistan, including many in my 
district, who are not going to get any retirement benefits, 
because as you can see they really only were serving for four, 
five, six years. So, to me that does not seem fair, especially 
given that members of Congress, Congressional staff, law 
enforcement officers, firefighters, can accrue pension benefits 
after five years. We accrue them after six. So is the current 
retirement system for military fair and efficient, and if not, 
how could we make it better?
    Mr. Mosher. I cannot speak to fairness and efficiency. We 
have not analyzed that in any detailed way. What I can say is 
that there have been numerous proposals over the decades to try 
to change the military retirement system, and there are 
defenders on both sides. You know, there are advantages as you 
point out, what that is called cliff-vesting, you do not get 
anything until you reach 20 years except for some disability 
cases. So you cliff-vest, and that creates an incentive for 
people to leave afterwards. Right? Sooner than you might want 
them otherwise, and for folks particularly in those first 10 
years of service, it tends not to entice them to stick around 
for that pension. You know, once they get beyond ten years, 
then people tend to stick around because they are a little 
older, a pension means more, and it is closer to them.
    Ms. Wasserman Schultz. It is worth it to them.
    Mr. Mosher. It becomes worth it to them, but that is the 
way the system is designed and there are pros and cons to it 
and what you say is absolutely true, people who do not serve 
the 20 years do not get the money and a lot of people enlist 
and then leave. I mean it is often it is a choice on their 
part. They do not want the military life. You could do 
something that would be like a TSP system which would be sort 
of a hybrid, a small defined benefit program infers and then a 
contributory program. You could do something that would be like 
the old CSRS system, which was that federal system where you 
had a defined benefit only, you did not have to worry about the 
state of the market at the time. Or you could have something 
that is much more like a 401k, that many people have in the 
private sector; but all those have advantages and disadvantages 
and I guess the right people to talk about this would be the 
folks at DOD who could talk about. You know there is a force 
management issue as well. There is an equity issue, clearly. If 
I am the managers of personnel in DOD, how is it that I ensure 
that I get the force structure that I want that has the 
capabilities that I want, that has the pyramid structure that I 
want, because you know as you move up in rank there are fewer 
and fewer people at those ranks. And it is a very complicated 
discussion, but yes, clearly there are people who have argued 
that it needs to be changed, and there are people who have 
argued that you know it has some advantages.
    Ms. Wasserman Schultz. Right the point and the concern is 
that there is quite a bit of sacrifice without really anything 
to show for it at the end.
    Mr. Mosher. In terms of a pension, you are absolutely 
correct.
    Ms. Wasserman Schultz. Yeah. Thank you. I yield back.
    Mr. Lankford. Thank you Mr. Van Hollen, just a quick 
question.
    Mr. Van Hollen. Thank you Mr. Chairman, about three minutes 
ago the Chairman turned to me and said to me do I have any 
closing statements, I said no and that was until Senator Talent 
mentioned that the President's $400 billion in proposed defense 
spending cuts was quote, ``a fantasy.'' I would just point out 
that if that is your standard, I would ask you to look at the 
members of the President's Bipartisan Fiscal Commission. The 
president proposed $400 billion over 12 years, which would 
allow the current defense budget to grow at the rate of 
inflation.
    The Bipartisan Commission, recommended a $1 trillion in 
cuts, so by the standard that $400 billion over 12 years is 
fantasy, I am assuming that you put such individuals like 
Senator Coburn, Senator Crapo, former Senator Craig, Senator 
Domenici, in the land of the totally delusional. We have got to 
get serious about our budget deficit. To say that 20 percent of 
our budget is a trivial contribution to that national effort, I 
think neglects the very important duties that we have. And I 
will just end by where we started. I agree with you that our 
defense spending has to be driven by strategy. We have had that 
conversation. That is why I think putting an artificial GDP 
percentage on it is math and not strategy. Part of that 
strategy requires United States to retain the economic power 
and full potential that it has. If we do not deal with this 
deficit and debt as the current Chairman of the Joint Chiefs of 
Staff has said, we will all be in a world of hurt and that will 
hurt our military, and it will hurt the ability of the United 
States to project its interest, power, and values around the 
world. And so, I just ask you when we throw around phrases like 
fantasy for $400 billion, put that in the context of what 
bipartisan commissions have recommended. Thank you Mr. 
Chairman.
    Mr. Lankford. Thank you. Mr. Talent did you want to make a 
quick response to that?
    Mr. Talent. Well, what I think it is fantasy to believe 
that we can cut that much out of the defense budget over the 
next 10 years and protect American security within an 
acceptable margin of risk. That happens to be my view, strongly 
stated. I understand that the members and the people you talked 
about disagree. I do think that the Simpson-Bowles report, as 
far as it referred to defense spending was budget-driven rather 
than strategic-driven. Now as far as the Administration is 
concerned, I certainly meant no disrespect.
    I do think this is a situation where the Administration in 
its first two years has been proposing, and I thought this was 
not everything we needed to do but it was partly, modest real 
increases in the defense budget. And now the president has 
unveiled this idea of cutting the defense budget over the next 
10 years.
    So I think that it is an internally inconsistent position, 
and I mean if I were still on the HASK and I would had 
officials of the DOD in front of me, I would say well, if this 
new position is right then does that mean the old one was 
wrong? And if the old position was right, does that mean the 
new one is wrong? But I appreciate what you are saying and I 
agree with much of it. And now I get a chance to apologize 
personally to you, like I said, giving you more answer than you 
gave me.
    Mr. Van Hollen. No apologies necessary on that front 
Senator.
    Mr. Talent. Thank you.
    Mr. Van Hollen. Thank you both for your testimony. Thank 
you Mr. Chairman.
    Mr. Lankford. Thank you and we are still waiting on the 
details of what that $400 billion cut is over the next decade, 
and so that is part of the ongoing pursuit of this, as well, is 
when to recommend it, but it is another one to be able to get 
the details of that. Obviously defense spending is falling 
dramatically over the last 50 years and a percent of the 
federal budget and what we are doing. But it is just a matter 
of being judicious with that process. So and I do appreciate 
you all coming and being a part of the panel today. With that 
we are adjourned.
    [The prepared statement of Hon. Peter T. King follows:]

          Prepared Statement of Hon. Peter T. King, Chairman,
                     Committee on Homeland Security

    I would like to take the opportunity to thank Chairman Ryan for 
holding this hearing regarding the National Security budget. I also 
thank the Chairman, Ranking Member Van Hollen, and Members of the 
Committee for considering my statement and including it in the record.
    Homeland Security Secretary Janet Napolitano has warned that our 
Nation is currently at its highest level of a terrorist threat since 
September 11, 2001. We must work to ensure that the Department of 
Homeland Security is receiving sufficient funding to keep our Nation 
safe.
    Homeland Security is National Security. When Secretary Napolitano 
testified before the House Committee on Homeland Security on March 3, 
2011, she stated, ``The demands on DHS have never been greater and the 
threats we face pose new challenges that require an innovative and 
focused response.'' According to Attorney General Eric Holder, during 
2009 and 2010, 126 people were indicted for terrorist attacks, 50 of 
which were U.S. citizens. This week, on July 5, 2011, the Justice 
Department issued an indictment against Ahmed Abdulkadir Warsame who is 
charged with providing material support to the terrorist group, al 
Shabaab. Also this week, new threats to aviation security were 
reported, which should remind all Americans how important airport 
security truly is.
    There are imminent terrorist threats to our Homeland, and this 
Congress has a primary responsibility to the American people to protect 
the Homeland and ensure the proper funding to address any possible 
security threats.
    In assessing the most important budgeting priorities, we must first 
look to Federal grant funding for our local and state law enforcement 
partners in regions of the highest security risk. In the budget put 
forth by this Committee, and the subsequent Fiscal Year 2012 Homeland 
Security Appropriations bill, grants including the Urban Area Security 
Initiative, the State Homeland Security Grant Program, the Transit 
Security Grant Program, the Port Security Grant Program, and other 
grant programs for emergency communications systems and emergency 
medical response were cut by 50%, from nearly $2 billion to $1 billion. 
Such cuts jeopardize our security and make our Nation less safe.
    As your Committee rightfully gives great importance to funding our 
Armed Forces fighting terrorism overseas, we must not become complacent 
at home. As a Representative from New York, my constituents know first-
hand the tragedy of a terrorist attack and the heroic work of our first 
responders. Although we must reduce spending and shrink the deficit, we 
must avoid cuts to these critical grants that would severely weaken our 
Nation's ability to defend against future plots.
    Budgeting sufficient funding to protect our Homeland will not only 
protect the lives of Americans, but prevent the devastating economic 
harm that followed the 9/11 terrorist attacks.
    Chairman Ryan, I again commend you for holding this important 
hearing. I trust that you and our colleagues who serve on the Budget 
Committee will agree that decreasing funding for Homeland Security, as 
we prepare to reflect on the 10th Anniversary of the 9/11 terrorist 
attacks, will put our country at risk and is not in the best interests 
of the safety and security of the American people. I look forward to 
working with you to address the challenges ahead.

    [Whereupon, at 12:27 p.m. the Committee was adjourned.]

                                  
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