The Democrats will take the reins of power in Washington on Jan. 20 when President-Elect Joe Biden is sworn into office, as the party will control both the House and Senate as well. But does this mean a reduction to the defense budget is inevitable?
Biden will be under pressure from members of the progressive wing of his party—think Reps. Alexandria Ocasio-Cortez, Barbara Lee (D-Calif.) and Mark Pocan (D-Wis.)—who are calling for a 10% or larger reduction to defense spending, which would be more than $70 billion annually. But without the support of the larger party, and with slim majorities relative to the Republicans, a reduction of that level may be difficult to achieve.
House Appropriations Committee Chairwoman Rosa DeLauro (D-Conn.), who will play a key role in discussions about the size of the budget, told Aerospace DAILY in a Jan. 7 statement: “With the end of Budget Control Act caps, Congress has many important funding decisions to make in the coming months. As we weigh our spending bills, Democrats will carefully balance the need to support critical domestic priorities while maintaining a robust national defense.”
Other leading Democrats—House Armed Services Committee Chairman Adam Smith (D-Wash.) and Kathleen Hicks, Biden’s pick for deputy defense secretary—have said they support a smaller reduction of $20-30 billion annually, or a 3-4% cut.
“For too long, Washington has had an overly militarized approach to national security,” Hicks wrote in Foreign Affairs. “A world in which the United States’ primacy is fading calls for a new approach … The time is right, then, for a grand strategy that expands the range of foreign policy tools well beyond what defense spending buys.”
Smith said he remains “unconvinced” that a 10-20% cut to defense funding would support a sound national security policy. “It can’t just be, ‘Well, I’d rather spend the money elsewhere. I don’t like the Defense Department. I’m going to cut their budget.’”
Roman Schweizer at Cowen Washington Research Group told clients that Democratic control of the Senate is the worst possible outcome for defense, but all is not lost. Even small reductions to the budget will be hard to achieve, given bipartisan support for national security.
House Speaker Nancy Pelosi (D-Calif.) and incoming Senate Majority Leader Chuck Schumer (D-N.Y.) must manage the social media-savvy progressive wing because slogans like “Defunding DoD” and “Abolishing ICE” could hurt the party in the 2022 election cycle. It would set up the possibility for Sen. Mitch McConnell (R-Ky.) to cripple the Democrats and rally the Republican base, Schweizer said.
The fiscal 2022 appropriations cycle begins once the president delivers his budget to Capitol Hill. The official deadline is Feb. 1, but after an election a delay is not unusual to allow time for a new administration to put its stamp on the budget.
Looking abroad, industry must be aware that U.S. defense exports to the Middle East may take a hit—especially offensive weapons like combat aircraft and precision-guided munitions, Byron Callan at Capital Alpha Partners said in a note to institutional investors Jan. 6.
An important item to watch is how boards and managements of defense contractors respond to the potential for a year of market underperformance, Callan wrote.
“This could be a more important question to answer than who’s best positioned in defense,” Callan said.
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