The Cable

Jack Lew tries to explain the defense “cuts” in the debt deal

Nobody, including the leaders of the Senate Armed Services Committee, could figure out exactly how the debt ceiling deal will actually impact defense budgets, so Office of Management and Budget (OMB) Director Jack Lew wrote a long blog post today trying to explain it as best he could.

In the explanation, he said that the national security budget will actually only be cut by $4 billion next year compared to this year, and that the money might not even come from the Pentagon budget. It will divided over the "security" budget, which includes the Defense Department, State, foreign aid, intelligence, the Department of Homeland Security, Veterans Affairs, and some Department of Energy programs,

As The Cable reported several times, there are no actual defense budget cuts guaranteed in the debt ceiling bill, despite the White House's claim that the deal puts the nation on track to "save" $350 billion in defense spending over the next ten years. Lew admitted that the $350 billion figure is based on comparisons to a CBO baseline projection, not the current budget, and he also admitted that actual cuts will be determined years from now by the administration and future Congresses.

"Under baseline estimates, [the debt deal] would cut approximately $420 billion over 10 years," from security spending, Lew wrote. "Assuming roughly proportional cuts, we project that of that $420 billion, $350 billion would be from the budget category of defense, and approximately $330 billion of that would be specifically from the Department of Defense."

But wait, that's only if you compare the "cuts" to the CBO baseline, which assumes that defense spending will go up 2 percent each year. So how much would the debt deal cut from the "security" budget compared to the fiscal 2011 budget?

"The agreement reduces discretionary security spending in FY 2012 by $4 billion as measured from FY 2011, and then only increases that reduced amount by $2 billion in FY 2013," Lew wrote.

After that, the spending caps don't make any distinctions between "security" and "non-security" budget accounts, so the "savings" are anyone's guess. If you compare the White House's "projection" of security savings to its April fiscal framework, which called for $400 billion in security savings over 12 years, it appears pretty much consistent. If you compare the security savings projection to the long-term budget plan the administration published in February, "this new path will save some $600 billion, including about $500 billion from national defense," Lew said.

Of course, that February budget plan is no longer seen by anybody as a potential option, especially since the White House itself replaced it in April with the new "fiscal framework" Lew mentioned. It's like your boss promising you a raise, then taking away the promise of the raise, and then telling you, "Look how much money we saved!"

The second part of the debt ceiling bill promises that another $600 billion in projected defense cuts will automatically go into effect unless the new Congressional "supercommittee" agrees on $1.5 billion in new cuts next year, which isn't likely. But Lew is warning that this is only a threat the administration doesn't actually want to implement those cuts.

"Make no mistake: the sequester is not meant to be policy. Rather, it is meant to be an unpalatable option that all parties want to avoid," Lew wrote.

But if for some reason Congress can't compromise in the supercommittee, lawmakers can always spread those $600 billion of cuts over the 10 years in a way that will make it another Congress's headache several years into the future.

In the end, it all lies in the hands of Congress. "Of course, the precise funding levels and the specifics of how these cuts would be taken will have to be worked out by the administration and Congress over the next decade," Lew said.

Meanwhile, new Defense Secretary Leon Panetta sent out a message yesterday that he is fine with the defense "cuts" in the first part of the bill, because that's what the military was expecting anyway.

"The reductions in defense spending that will take place as a result of the debt ceiling agreement reached by Congress and the President are in line with what this Department's civilian and military leaders were anticipating, and I believe we can implement these reductions while maintaining the excellence of our military," Panetta wrote.

But he, like Lew, is warning that the $600 billion in "cuts" in the trigger mechanism are dangerous, and that Congress better learn how to compromise, and fast.

"This potential deep cut in defense spending is not meant as policy. Rather, it is designed to be unpalatable to spur responsible, balanced deficit reduction and avoid misguided cuts to our security," Panetta said. "Indeed, this outcome would be completely unacceptable to me as Secretary of Defense, the President, and to our nation's leaders."

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Biden goes to Asia

Vice President Joseph Biden is on his way to China, Mongolia, and Japan later this month, his office announced today.

In Beijing, Biden will meet with Vice President Xi Jinping, who is expected to replace Hu Jintao as president next year.

"He will visit China at the invitation of Vice President Xi Jinping - the first of the planned reciprocal visits between the Vice Presidents announced during President Hu Jintao's state visit to Washington earlier this year," the White House said in a release.

Biden will do the diplomatic trifecta, meeting with Hu in Beijing, as well as Chinese premier Wen Jiabao. After Beijing, Biden will go to the southwestern Chinese city of Chengdu, then to the Mongolian capitol of Ulaanbaatar, and then Tokyo. The Office of the Vice President did not release the dates or specifics of meetings for the Mongolia or Japan legs of Biden's trip.

The China visit comes only three months before President Barack Obama travels to Asia in November. Obama will lead a huge U.S. delegation as the host of the 2011 Asia-Pacific Economic Cooperation (APEC) forum, which is being held in the city of his birth, Honolulu. He will then go to Bali to lead America's first-ever delegation as an official member of the East Asia Summit (EAS). EAS is a regional security focused organization that the administration joined as part of an increased commitment to strengthen U.S. relations with Asia.

Secretary of State Hillary Clinton just got back from Bali, where she was attending the ASEAN Regional Forum (ARF), the largest grouping of Southeast Asian nations and their friends. Former Defense Secretary Robert Gates was in Singapore in June for the IISS Shangri-La Security Dialogue, which was also attended by your humble Cable guy.

In between Honolulu and Bali, Obama has a few days of down time, not enough to go back to Washington but certainly enough to visit one more country in the region. But where will he go? The Australian ambassador told a group of journalists at his annual summer BBQ this week that Australia is lobbying hard for an Obama visit. The White House has yet to make any commitments to Australia, or any other country.

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