Anatomy of a Defense Budget

Donald Trump’s return to the Oval Office is set to accelerate the growth of the US defense budget. Having increased from $590 billion to $742 billion during the first Trump administration, a 26 percent increase, annual defense spending has rapidly regained its place as a congressional priority since the Obama years. The Biden administration’s “foreign policy for the middle class” continued this trend: over the past four years the Department of Defense saw its budget grow another 21 percent to $895.2 billion for FY2025. In his message to the force, former Fox News host and new Defense Secretary Pete Hegseth promised to “rebuild our military” with “a focus on lethality, meritocracy, accountability, standards, and readiness.” 

The Pentagon budget is likely to grow substantially in the coming year: for FY2026, the Senate Budget Committee’s initial proposal includes a $150 billion increase in defense spending, compared to a $100 billion increase in the House Budget Committee’s version, targets that will bring the Pentagon’s annual budget authority to the $1 trillion level. Amid the turn towards neoliberalism and the end of the Cold War, defense spending has remained the one kind of annual appropriation that has continued to grow amid the general trend toward federal austerity. This continues to be true, even with the threat of civilian layoffs as part of federal spending slashes.¹ Understanding how and why this is the case is an important problem of political economy. The multigenerational push to cut taxes and slow spending growth is often described—by both proponents and critics—as a way of insulating fiscal policy from the demands of democracy. The persistent growth of the US defense budget confirms this in a different way, linking foreign policy centered on war and militarized state-building efforts to a domestic policy centered on tech-oriented economic growth. This allows us to see the political priorities in the evolution of the US mixed economy.  

How the US political system navigates the coming world shaped by the second Trump administration will depend on the politics of the budget, and defense agencies comprise the greatest single organized interest. US policymakers have already committed to rapidly increasing military spending. Not only has the Pentagon come to conceive of its role in national defense in terms of marketplace of vendors for particular governmental clients, but the projects and identity of those clients evolved during the Global War on Terror to include foreign governments and state-building projects. The vast US defense apparatus today operates through labyrinthine budgetary procedures, policies, and logics that extend far beyond a single administration. Throughout the past century, these evolutions in US military spending have reflected the changing nature of American warfare, governance, and power.

The base budget

In FY2023, the Office of Management and Budget (OMB) reported that the US spent $820 billion on national defense—about 13 percent of total federal spending. Relative to GDP, this figure alone puts the US ahead of all other advanced economies in defense expenditure. But reporting it in this way obscures the ways in which defense spending dominates US budget politics. The bulk of US defense spending—funding for the DOD—occurs through “discretionary” spending, meaning spending authorized annually as opposed to mandated by prior law. Budget authority for discretionary spending is the focus of annual appropriation politics, and the DOD’s $895.2 billion budget for FY2025 accounts for 56 percent of it.

The National Defense Authorization Act (NDAA) is the primary legislative vehicle for DOD budget authority. Successfully passed every year since 1961, jurisdiction for these authorizations lies with the Armed Services Committees of the House and Senate, each of which today has seven subcommittees responsible for various military functions. Before the 1950s, the Armed Services Committees exercised little control over the details of defense contracting, limiting oversight to broadly drawn multiyear or permanent authorizations and leaving dollar amounts to each chamber’s Appropriations Committee. Military construction was the sole exception. The Armed Services Committees were formed in 1947, the same year as the National Security Act that created the Pentagon and the Joint Chiefs of Staff. The members of these committees had long enjoyed annual control of construction contracts, and they retained this power as military spending mushroomed for World War II and the Korean War. By the late 1950s, investigations into cost-overruns in missile and aircraft systems fell to the Armed Services Committee, which responded by extending annual authorization beyond military construction to procurement for FY1962—the first NDAA.²

As an authorization bill, the NDAA lacks final budgetary authority and requires an appropriations bill for approving payment obligations. But as the Congress converted more and more federal programs to annual authorizations, decision over spending details migrated from the executive agencies and the Appropriations Committees to the authorizing committees. The Armed Services Committee extended annual authorizations over military research and development in 1962, the Coast Guard in 1963, and finally to military operations and maintenance in 1980. Since rules in both the House and Senate attempt to limit appropriations only to authorized uses, the NDAA is how Congress exerts control over the military, adjudicating defense policy and administrative matters.³

But the $895.2 billion NDAA is just the “base budget.” As the chart below illustrates, the Department of Defense’s (DOD) spending breaks down into five broad operational categories independent of war- or peacetime. Veterans’ benefits, humanitarian aid, and international development are thus excluded from conventional measures of defense spending, as is the bulk of the Department of Homeland Security’s $107 billion budget.

Federal spending on intelligence, which supports the now eighteen federal-level bureaucracies that constitute the US intelligence apparatus, is another area of defense spending authorized outside of the “base budget.” The “intelligence community” (IC) budget is made each year by the Intelligence Authorization Act (IAA). There are two major program funding streams: the National Intelligence Program (NIP), which includes the CIA and NSA; and the Military Intelligence Program (MIP), which covers military-specific tactical and operational activities managed separately by DOD. Until 1978, the intelligence agencies budget authorizations were permanent or multiyear, and after the Congress adopted annual authorizations that year the amounts authorized remained classified. Only in 2007 did Congress pass legislation requiring the IC to publicly disclose their topline annual spending numbers. Much of what is publicly known about intelligence spending on a more granular level has therefore come from investigative journalists, Congressional hearings, and whistleblowers.

Contracting war

Throughout the twentieth century and continuing in the present day, much of the DOD’s federal funds, as allocated in the base budget, are disbursed through private contractors. This was most true for procurement of armaments and munitions—with the exception of government-owned shipyards—though during World War II the federal government also owned manufacturing plants. In FY2022, the DOD incurred a total $415 billion in contract obligations, about half of its total budget authority (NDAA plus seven defense supplementals) and more than all other government agencies combined.⁴

The relationship of weapons makers to government contracts is a classic political-economy problem: elected leaders seek to control the industry through funding, while the industry uses that money to try and control them. The DOD and its corporate contractors have had a long history of codependence. But the identity of those contractors—the products and services they sell—has evolved with US foreign policy and military technology to include much more than weapons manufacturers. 

Seeking to cultivate American technological primacy in aerospace and nuclear weapons, President Eisenhower undertook a budget-balancing “New Look” policy in the early 1950s. Harry Truman’s Korean War had been initially funded by a massive “supplementary” appropriation outside the annual budget cycle, and the defense boom of 1951–1952 had built up a new standing army of tanks and troops and costly inventories of conventional weapons. Ironically, it was the New Look programs of missile systems and aircraft that saw the worst cost-overruns by private contractors, prompting the shift in Congress towards annual authorizations.  

Such attempts to reduce the military budget did not slow down its growth. Defense contracts were both essential to military strategy and impossible to manage during the Cold War. Four years after the first NDAA, a decade after Eisenhower’s New Look, President Lyndon Johnson escalated US participation in the Vietnam War, raising annual defense spending from $51 to $82 billion in four years. In 1969, Wisconsin Senator William Proxmire reported that the Air Force routinely attempted to cover up cost overruns— which, in the case of Lockheed’s C-5A cargo plane, exceeded nearly $2 billion, or $16 billion in today’s currency. As one of Proxmire’s key staffers, Richard Kaufman, described the military procurement system during the height of US involvement in Vietnam:

Defense contractors learned to make large amounts [of] their profits practically undetectable by old-fashioned auditing methods. Much, if not most, of the profits from defense contracts are hidden in ways not apparent from an examination of a firm’s profit and loss statement… Lax and sloppy enforcement of government regulations and contractual provisions… became the order of the day. [Executive agencies], as well as Congress, granted so many exemptions and privileges to the military and its contractors that control over and public accountability for defense spending were gradually lost.

Conflicts between the DOD, contractors, and Congress were frequent. In 1970, Proxmire declared: “Military spending in the United States is out of control. The Department of Defense now spends nearly half of every federal tax dollar… Yet there is no sufficiently critical review of what the Pentagon spends.” Complex technological needs, sensitive information, vested public and private interests, and bureaucratic lags in investigations rendered effective regulation of private military contractors nearly impossible. At the same time, the political will in the Congress to reduce the military budget evaporated after Watergate. Buoyed by the higher prices of inflation and pride of place among political priorities, annual defense spending rose during the Ford and Carter administrations from $88 billion to $135 billion.

The continued growth of the US intelligence budget shows one way these political priorities shaped federal funding decisions. Though Congress has always maintained nominal oversight and budgetary powers over the intelligence agencies, the highly classified nature of intelligence spending has historically made it more difficult to track than defense spending in the base budget. In a key example, from 1975 to 1976, the House Permanent Select Committee on Intelligence under Rep. Otis Pike (D-NY) sought to check executive power by investigating the CIA. The Ford Administration was able to suppress publication of the Committee’s final report, but large excerpts were immediately leaked to the press (the entire report was released in full only in 1991). The Committee found the CIA’s budget was three to four times higher in practice than on paper.” The CIA was found to utilize dishonest accounting and contracting practices to obscure its actual spending patterns. As the report put it bluntly, “The American taxpayer clearly does not receive full value for his intelligence dollar.” 

The growth of the defense sector

This pattern of continued growth, despite congressional controversy, entrenched itself further with the end of the Cold War. The growth of contracting beyond procurement, a product of the general push to limit government spending, in the case of the military actually propelled further growth. The deficit control laws of the Reagan and George H.W. Bush years had recognized the problem of the continued growth of military spending—from $134 billion in 1980 to $253 billion in 1985—and made it subject to sequestration when appropriations surpassed spending ceilings.⁵ These laws also, however, provided “emergency needs” exemptions, which the Bush administration used to pass supplemental appropriations in late 1990 for the first Gulf War, raising annual defense spending from $300 billion to $319 billion. 

As with Eisenhower’s “New Look,” Clinton’s “Revolution in Military Affairs” of the 1990s doubled down on technological primacy as both a cost-cutting mechanism and the key to future military victory. Anything not designated an “inherently governmental function” could be turned over to the private sector, which boasted supposed lower costs. Sophisticated new electronic systems, especially airpower and precision bombing, would enable the US military to be prepared for any threat. In an era of general privatization, more contractors would need to fill in the gaps—in supply chain logistics, labor, technological development, and systems maintenance. 

The Reagan defense build up had seen the growth of such “support services” alongside military personnel. Despite hopes of a “peace dividend” that could return the United States to pre-World War II levels of defense spending relative to the rest of the federal budget, budget cuts between 1990 and 2000 impacted primarily military forces rather than the new higher levels of support services. Moreover, budget “firewalls” in the BEA and the Clinton administration budgets prohibited shifting funds between spending categories. The result was a rise in civilian contractors as a share of the defense budget, offering services such as facilities management, ground vehicle support, communications systems, and procurement of field essentials such as petroleum and water. In FY2022, 49 percent of total DOD contract obligations were for services while 51 percent were for goods. 

Today, private contractors tend to be associated with the likes of Blackwater and other armed security guards. Contractors working in engineering, construction, industrial production, and academic research, however, remain integral to the DOD for a variety of services beyond military force: logistics, maintenance, procurement, and R&D. Still, the top-five highest-earning mainstays on DOD’s payroll—Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrup—made up 36 percent of all DOD defense contracts in FY2022. Though the defense contractor lobby claims to be in financial need, this federal expenditure has backstopped what is in fact an increasing profitability. “Despite improving profit margins and cash generation for defense contractors in 2010-2019 vs 2000-2009,” the Office of the Under Secretary of Defense for Acquisition and Sustainment found in 2023, “the share of contractor spending on Independent Research and Development (IR&D) and capital expenditures declined while cash paid to shareholders in dividends and share repurchases increased by 73 percent.” 

The shift to contingency

The Iraq and Afghanistan wars—two of the United States’s costliest conflicts— fundamentally transformed the nature of warfare and, as a consequence, the defense budget. The Bush administration was able to do this in part because of the expiration of Clinton-era deficit-control laws, which the Republican Congress of 2001-2002 used to fund tax cuts on top incomes, in part because of “emergency requirements” exemptions to House and Senate appropriations rules. In government terms, the name of this emergency for rapidly increasing defense spending—from $295 billion in 2000 to $612 billion in 2008—was the broad designation of the Global War on Terror (GWOT).  

The label allowed the executive and legislative branches to evade not only traditional Constitutional procedures for the formal declaration of war, but also budgetary procedures that bound federal spending. Rather than authorizing and appropriating discretionary funds for GWOT through the annual budget cycle, the Bush administration requested additional defense spending as supplemental appropriations. Like the NDAA and discretionary spending bills, supplemental funds are proposed and voted on by Congress, enacted into law by the President, with the money released by the Treasury. But because of existing deficit-control rules in each chamber, the Bush administration had to designate these supplemental requests as emergency requirements—which it did each year after September 11, 2001. Congressional democrats attempted to limit this use of emergency funding after taking the majority in 2007. But upon entering the White House in 2009, the Obama Administration redesignated this funding as Overseas Contingency Operations (OCO) and agreed to exempt them from the spending ceilings and sequestration rules in the Budget Control Act of 2011. 

From 2001 through 2019, GWOT/OCO supplemental funding averaged an estimated 17 percent of the DOD’s total budgetary authority. As the Congressional Research Service stated: “Congress has, for an extended period and to a much greater degree than in previous conflicts in the twentieth century, appropriated supplemental and specially designated funding over and above the base DOD budget.” As former Secretary of Defense Chuck Hagel admitted in 2014, “There are a lot of different opinions about whether there should be an overseas contingency account or not and whether it’s a slush fund or not.”

It is thus difficult to arrive at accurate figures for GWOT/OCO spending, despite federal reporting and transparency regulations. Bringing together annual appropriations, supplemental appropriations, veteran care, counterterrorism, and estimated interest payments, the Costs of War Project at Brown University estimated that economic costs of post 9/11 defense spending through FY2022 have exceeded $8 trillion (see figure below). The largest single share of appropriations is the DOD, but the considerable shares designated to Homeland Security and the State Department speak to the complexity of US operations in Iraq and Afghanistan. 

The Iraq and Afghanistan Wars were expensive because they represented two state re-engineering projects, spearheaded and sponsored by the DOD. The doctrine of counterinsurgency (COIN), which served as the strategic centerpiece of the 2007 Surge campaign in Iraq and the 2010 Surge campaign in Afghanistan, advocates for “comprehensive civilian and military efforts designed to simultaneously defeat and contain insurgency and address its root causes.” While the 2014 edition of the Field Manual specifies that “ideally, the host nation is the primary actor in defeating an insurgency,” and that “one of the Army and Marine Corps’ primary roles in counterinsurgency is to enable the host nation,” US security priorities shape military intervention in the governance of sovereign nations.

The US war efforts in Iraq and Afghanistan thus extended far beyond conventional warfare. Major reconstruction and infrastructure development in Iraq, and wholesale institution-building in Afghanistan including “security forces, civilian government institutions, economy, and civil society,” were carried out primarily by the DOD, the State Department, and the US Agency for International Development (USAID)—utilizing supplemental appropriations. Due to the speed and ambition of the mandates established by the Bush Administration in Afghanistan and then Iraq, DOD disbursed its mammoth funds and shared operational responsibilities with an unofficial secondary army of private contractors. Since the GWOT/OCO began in 2001, the US military relied on an increasing number of contractors until, in 2011, there were more contractor than uniformed personnel in Afghanistan and Iraq. In 2023, the DOD and Armed Services estimated their employment at some 2.1 million uniformed personnel, 832,000 civilian personnel, and contractor workforce of 972,000. 

While the systematic issues related to private contracting in the Iraq and Afghanistan Wars were familiar, the expanded scale and scope of the operations made those issues correspondingly more consequential. As in the Cold War, both DOD and Congress struggled to keep up with massive cost overruns, lack of contractor transparency, and a dearth of internal auditing capacity. Congress established two independent offices dedicated to oversight of Iraq and Afghanistan contracts—the Special Inspector General for Iraq Reconstruction (SIGIR) and the Special Inspector General for Afghanistan Reconstruction (SIGAR)—which consistently published detailed, public-facing reports on federal efforts to combat inflated contractor costs and fraud. But by SIGIR’s own admission in 2013:

“The Iraq reconstruction program’s improvised nature, its constant personnel turnover, and its shifting management regimes forced U.S. strategy to change speed and course continually, wasting resources along the way and exposing taxpayer dollars to fraud and abuse… Contingency contracting has undergone reform, but not in a comprehensive fashion.”

Blackwater made international headlines in 2007 when security guards opened fire in the middle of a crowded public square in Baghdad and killed seventeen civilians. The Nisour Square Massacre, as the killings came to be known, launched a debate around whether armed private security guards were in fact unregulated corporate neo-mercenaries. While Blackwater was the poster child for irresponsible private contracting in Iraq, it was just the tip of the iceberg in budgetary terms. Most private contractors in Iraq and Afghanistan were unarmed. A vast network of private contractors, including a global labor force of third-country nationals and subcontractors grew after 9/11. By 2010, at the height of the Iraq and Afghanistan wars, not even Secretary of Defense Robert Gates could provide an accurate count of how many contractors worked for DOD. 

Secrecy has persisted within the intelligence agencies too during the era of emergency spending under the signs of the GWOT and OCO. In 2013, Edward Snowden, a private contractor for the CIA and NSA, famously leaked the 2013 intelligence “black budget”—a $52.6 billion pot of money distributed across sixteen agencies, which adds up to what the Washington Post calls “an espionage empire with resources and a reach beyond those of any adversary, sustained even now by spending that rivals or exceeds the levels at the height of the Cold War.”

Conclusion

With the end of major operations in Afghanistan in 2021, the “Global War on Terror” has ostensibly ended. In his January 2025 inaugural address, Trump claimed that “my proudest legacy will be that of a peacemaker and unifier.” Yet, the FY2025 defense budget shows little in the way of strategic change or budgetary downsizing. The Biden Administration initiated $58.6 billion in supplemental budget authority in FY2024 for Ukraine and Israel. In December, the Congress sent the NDAA for FY2025 to the White House, which President Biden signed in his final weeks in office in January. The total was $895.2 billion. 

This continued growth in defense spending thus prompts a serious reconsideration of what “war” and “security” really mean in and for the United States. As US fiscal policy has transformed in the era of neoliberalism, the “discretionary” share of federal spending has been squeezed, falling from 44 percent in the Nixon years to 34 percent in the late 1990s to 28 percent in 2023. But as changes in tax law and deficit rules have reduced the share of the federal budget available for discretionary programs, the fiscal demands of the US military have continued to grow, crowding out the civilian functions of the federal government. In the process, the legal authority for funding and the purpose of that funding have undergone profound changes. These shifts are indicative of the expanding functions of US warfare abroad and the rising economic power of the defense and tech industries at home.

The new administration’s attacks on federal spending for civilian programs make it clear that the defense budget is more than a tedious collection of acronyms, line items, and appropriations procedures. Ultimately, the federal budget is a social as well as an economic contract. The defensive operations, exercises, strategies, missions, and police actions spearheaded by DOD in the name of “enduring US interests” around the world must be rigorously audited by the American public, in whose name “US interests” are justified. Indeed, as Americans face existential threats to their health, safety, and environment, public spending earmarked for national security efforts must enter the arena of democratic debate.

Footnotes