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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Military Pension Reform and the Bipartisan Budget Act



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The bipartisan budget deal crafted by House Budget Committee Chairman Paul Ryan and Senate Budget Committee Chairman Patty Murray seems to have cleared the highest hurdles to passage. I hear hearing about how modest the deal is, and how it reflects a larger failure of the U.S. political class. That may well be true. I would have been far more impressed if, for example, Republicans had negotiated a reform of unemployment insurance as a condition of granting Democrats the extension of UI benefits they favor. But as I argued on Friday, the deal does protect important military investments during a dangerous geopolitical moment, when China and other rising regional powers are looking to use precision-guided munitions and other low-cost technologies to limit America’s strategic reach. And Ryan and Murray made a number of political decisions that were actually quite admirable; most notably they agreed to curtail cost-of-living adjustments for military pensions for people under the age of 62. A number of Republican senators, including Sens. Roger Wicker, Lindsey Graham, Kelly Ayotte, and James Inhofe, have described this provision as a bridge too far, as John McCormack reports. In an interview, Ryan explains his thinking to McCormack:

“We give them a slightly smaller adjustment for inflation because they’re still in their working years and in most cases earning another paycheck,” Ryan said. “Our goal here is to make sure that no other country comes close to matching the U.S. military, and the stress on the budget in the future brings that whole entire notion into question. We still have a Pentagon budget that is not where it needs to be.”

Under the 2011 Budget Control Act, about $1 trillion was cut from the defense budget over 10 years–roughly $500 billion by the law’s spending caps and another $500 billion through automatic sequestration cuts, which exempted personnel. The Ryan-Murray deal relieves $31.5 billion in sequestration cuts to defense over the next two years. “From my conversation with just Chuck Hagel and General Dempsey recently, the biggest relief this gets is military readiness,” Ryan said. “The statistics are very, very concerning about our readiness.”

The COLA reduction for military retirees, which doesn’t take effect until January of 2016, would save an additional $6 billion over 10 years in the defense budget. “The defense community asked us to look at compensation and their entitlement spending within the Pentagon. We knew we couldn’t put back into the Pentagon’s budget as much as we’d like to, and these reforms help them with their budget,” said Ryan. “The savings stays with the Department of Defense and that comes on top of the money we’re giving back through the sequester.”

And he notes that the military will have time to craft a more comprehensive solution to the problem of rising personnel costs. If Ryan and his allies are serious about reforming personnel practices, they should look to Tim Kane, a research fellow at the Hoover Institution who recently addressed the issue here at NRO:

My wish for Christmas? Chuck Hagel applies the logic of flexible personnel management to the DOD budget, embraces the Ryan–Murray deal, and spends 2014 talking about institutional reform. Instead of taking personnel expenses off the table, as sequestration did, make them the main course. Consider the proposed FY2014 DOD budget, which totals $115,210,902,000 in personnel costs.  One hundred billion is for active-duty pay, but only half of that is basic pay. The other half consists of incentives, special pay, and assorted allowances. In addition, nearly $5 billion is spent on change-of-station costs.

The reform I propose is called the Total Volunteer Force, inspired by the 1973 reform that ended the draft. The military learned then that paying volunteer soldiers more than conscripts lowered fatalities and costs. It enhanced retention, thereby lowering training costs while improving troop quality. We could do it again.

Essentially, Kane calls for decentralizing hiring practices within the military, giving all military personnel the choice to stay in their jobs, to give servicemembers more control over their careers and to allow them to specialize, and to replace the 20-year pension cliff with a 401(k)-style retirement plan. The end result will be a military that does a better job of allocating human capital, and considerable cost savings as productivity increases. The Bipartisan Budget Act doesn’t get us to Kane’s Total Volunteer Force — but by demonstrating that reforming military pensions isn’t impossible, it’s a decent first step.

 



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