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This backgrounder addresses the current state of the FY 2011 defense budget, identifies insights stemming from Secretary Gates’ announcement on the FY 2012 budget, and raises budgetary and programmatic issues likely to complicate DoD’s planning over the Future Year Defense Program (FYDP).

With a federal budget deficit that exceeded $1.3 trillion in FY 2010 and a rapidly mounting national debt, the findings of the Fiscal Commission established to identify ways to balance the budget have been much anticipated. Tackling the deficit is important to restoring the government’s fiscal health and the nation’s economic prosperity. It is also important to national security. History has demonstrated that in times of major conflict, the fiscal might of the United States and the ability to mobilize resources on a massive level have been a source of enduring strategic advantage. But with the deficit near record levels, the debt load rising, and interest payments on the debt consuming a greater share of the budget each year, this advantage is rapidly eroding.

As fiscal year 2010 draws to a close and the economy struggles to recover from the deepest recession since the Great Depression, the federal government faces a number of fiscal challenges. The budget deficit is projected to exceed $1.4 trillion due in part to increased spending on fiscal stimulus programs and a sharp reduction in tax revenues due to the recession. But underlying the current fiscal situation is a structural deficit that the economic downturn only exacerbated. As Congress and the administration focus more attention on reducing the deficit,all areas of the budget, including defense, have come under increased scrutiny.

As the economy struggles to emerge from the deepest recession since the Great Depression, the federal government faces a dire fiscal situation. The budget deficit is projected to reach as high as $1.6 trillion in FY 2010 due in no small part to increased spending on fiscal stimulus programs and a sharp reduction in tax revenues due to the recession. But underlying the current fiscal situation is a structural deficit that the economic downturn only exacerbated. A telling indicator of this is that one of the fastest-growing items in the budget is net interest on the national debt. Given current projections, before this decade’s end the federal government will spend more on net interest payments than on national defense for the first time in modern history. And as Congress and the administration focus more attention on reducing the deficit,all areas of the budget, including defense, will come under increasing pressure.

The Obama Administration’s FY 2011 budget request includes a total of $712 billion for the Department of Defense (DoD). The base budget for the Department includes $549 billion in discretionary funding and $4 billion in mandatory funding. An additional $159 billion is requested for the wars in Afghanistan and Iraq. The budget also requests $19 billion for defense-related atomic energy programs, $8 billion for defense-related activities in other agencies, and $122 billion for veterans. Together these expenses total $861 billion, or 22 percent of the total federal budget.

As the economy begins to emerge from the deepest recession since the Great Depression, the federal government faces a dire fiscal situation. In fiscal year (FY) 2009, the budget deficit rose to a record high of $1.4 trillion, and it is forecasted to reach as high as $1.6 trillion in FY 2010. These record deficits are due in no small part to increased spending on fiscal stimulus programs and a sharp reduction in tax revenues due to the recession. But underlying the current fiscal situation is a structural deficit that the economic downturn has only exacerbated. A telling indicator of this is that one of the fastest growing items in the budget is net interest on the national debt. According to OMB projections, in FY 2018 the federal government will begin spending more on net interest payments than on national defense for the first time in modern history.