Business Environment Profiles - United States
Published: 11 July 2024
Federal funding for defense
737 $ billion
1.4 %
This driver tracks federal funding for the Department of Defense, which includes the base and Overseas Contingency Operations (OCO) budgets for the department. The data for this report, including forecasts, are sourced from the Office of Management and Budget and the President's most recent budget request. All values are presented in chained 2017 dollars.
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Federal defense costs jumped to a high in 2010 in response to two major wars. The costs associated with elevated troop levels were compounded by a significant investment in technology. Also contributing to the skyrocketing expenses was the Afghanistan surge that commenced in February 2010. This mission was designed to replicate a similar strategy undertaken in Iraq when additional troops were deployed to break the stalemate. The 9.6% and 6.5% spikes in defense spending for 2008 and 2009, respectively, were primarily driven by spending in Afghanistan.
During the last decade, federal funding for defense declined through 2017. This incline in spending can be explained by the end of large-scale combat operations in the Middle East and attempts by the government to reduce the budget deficit. The most significant slump in spending came from reduced OCO funding, which mainly accounts for US war spending and antiterrorist military operations. In particular, the end of the Iraq War and the winding down of operations in Afghanistan contributed the most to the contraction. The Budget Control Act of 2011's impact has tempered defense spending. In addition to its original cuts totaling nearly $900.0 billion, the act eventually led to budget caps on military funding through 2021. However, Congress has typically adjusted these caps to maintain a large defense budget with various pieces of legislation enabling such adjustments with the budget.
Between 2017 and 2020, federal funding for defense stabilized. Increased US combat operations against ISIS in Iraq and Syria bolstered the need for more funds. In turn, geopolitical tensions in Asia and Europe increased the need for the United States to spend more on the military. The increasing need for the military to prepare for potential conflict with near-peer rivals, such as China and Russia, explains why spending on more high-end platforms, like new fighter jets, ships and missiles, was cut much less than on ground combat equipment and technology. Another factor that contributed to a more substantial boost in defense spending in 2019, spilling over into 2020, was the creation of the Space Force, which added a branch to the US military; the first time this has happened since 1947 with the launching of the Air Force.
With an additional branch to account for amid other current operational duties for the US military, all helped boost the defense budget by 6.8% and 4.3% in 2019 and 2020, respectively. The lack of a significant geopolitical conflict that the US was involved in 2021 and other factors like the military exiting Afghanistan in the same period helped reduce the defense spending needed for the year, which shrank 0.5% in 2021. Following revisions in the budget for the 2022 fiscal year, defense spending continued to reduce in 2022, with the military scaling down their operations in Iraq in late 2021, which left a lesser need for more budget to be allocated for scaling up forces and conducting more missions. However, the continued war in Ukraine and the need for additional support for various missions worldwide helped boost defense spending in 2023, with the military providing direct aid to the country along with other equipment and weapons to the government against Russia's invasion, which contributed to scaled-up defense spending in the year. Back in late 2023, the war between Israel and Hamas had shaken up tensions in the region with the US being a major ally of Israel had in turn contributed to a need for additional support for the country as the government had approved various arms shipments for the country. With these factors in the year, defense spending is set to scale up in 2024 and in 2025 as these conflicts remained afoot.
Through the end of 2030, federal funding for defense is expected to be moderately upscale. While ...
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