#5

050 National Defense:Reform Military Compensation

Savings in Millions of Dollars
  • 2016
    2100
  • 2017
    3300
  • 2018
    4100
  • 2019
    4900
  • 2020
    5800
  • 2021
    6700
  • 2022
    7600
  • 2023
    8600
  • 2024
    9732
  • 2025
    11012
  • 2016-2020
    20200
  • 2016-2025
    63844

Sources

Savings include two budget options found on pages 58 and 236 of Congressional Budget Office, “Options for Reducing the Deficit: 2014 to 2023,” November 13, 2103. These options include Option 2: Cap Increases in Basic Pay for Military Service Members and Option 12: Modify TRICARE Enrollment Fees and Cost Sharing for Working-Age Military Retirees. The CBO provides savings estimates through 2023. We assume the same rate of growth in savings for 2024 and 2025 as occurred in 2023.

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Technical Notes on Scoring

CBO Baseline

Unless otherwise noted, calculations for savings for each recommendation relies on the most recent Congressional Budget Office baseline, as found in “An Update to the Budget and Economic Outlook: 2014 to 2024,” published August 27, 2014, has been used.

Savings “Totals”

While totals for the five and 10 year savings are provided by section and for the complete set of recommendations, there are two reasons they should not be viewed as representing total savings for The Budget Book.

First, as noted in the introduction, The Heritage Foundation would recommend that the savings realized in the Function 050 Defense section would stay within the Department of Defense to strengthen the nation’s defense capabilities.

Second, the numbers cannot be deemed to represent the realized savings if every single recommendation were adopted because policy changes made in one program can impact spending levels in other programs.  Thus, the numbers in the table do not reflect any potential interactions between the various policy changes affecting spending or savings.

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Heritage Recommendation:

Congress must reform military compensation to stop wasteful cost growths and better align the entire compensation system with the needs of today’s soldiers. This proposal saves $2.1 billion in 2016, and $63.8 billion over 10 years.

Rationale:

If we fix our outdated military compensation system, fed gov would save $64 billion

Active-duty soldiers receive compensation for their service in several ways: basic pay, health care, retirement, and additional non-pay benefits, such as education. In the past several decades, the cost for military personnel has grown drastically. From 2001 to 2012, the costs are estimated to have risen by 42 percent.1 The cost growth has become very problematic for the Department of Defense. In order to keep these costs from consuming the entire Pentagon budget, the military has responded the only way it can—by cutting end strength. This is not a viable solution, as military end strength must be determined by military requirements and strategy.

Congress must reform the various compensation systems. This is not simply a cost-cutting exercise. The fact is that some of these systems were originally crafted when the DOD was created and are truly outdated. For example, the DOD retirement benefit is still a pension system from 1920 that provides no benefits to those who leave the military with fewer than 20 years of service2. Most of the private sector no longer uses a pension system; furthermore the average person today will change jobs every 4.4 years.3 Reforms are necessary to align the military compensation system with today’s generation in order to better recruit and retain soldiers.

There have been many proposals for compensation reform. Many of these have merits; however the exact reform package should be informed by the findings of the Military Compensation and Retirement Modernization Commission, which will release a report in February 2015.

In general, compensation reform should:

  • Consider all aspects of soldier compensation, including basic pay, retirement, health care, and other non-pay benefits;
  • Reforms should reduce costs to the military in order to afford the necessary end strength to meet military requirements; and
  • Reforms should not merely cut costs but should enforce a strong recruitment and retention system to sustain the all-volunteer force.

The estimates above are an example of possible savings from CBO’s reform proposals for TRICARE and basic pay. The exact savings will be based on the details of the plan.

Endnotes

  1. Bipartisan Policy Center and American Enterprise Institute, Trends in Military Compensation: A Chartbook, July 18, 2014, p. 13, (accessed November 12, 2014 12). 

  2. Roy Wallace, David Lyle, and John Smith, “A Framework for Restructuring the Military Retirement System,” U.S. Army War College, Strategic Studies Institute, July 2013, p. 2.  

  3. Jeanna Meister, “Job Hopping Is the ‘New Normal’ for Millennials: Three Ways to Prevent a Human Resource Nightmare,” Forbes, August 14, 2012, Forbes, (accessed November 12, 2014). 

If we fix our outdated military compensation system, fed gov would save $64 billion

Contributing Expert

Diem Nguyen Salmon is the Senior Policy Analyst for Defense Budgeting in the Heritage Foundation's Allison Center for Foreign Policy Studies. Intimately familiar with both U.S. defense platforms and government contracting practices, she brings special expertise to questions of defense hardware investment.

See publications by Diem Nguyen Salmon

Diem Nguyen SalmonSenior Policy Analyst for Defense Budgeting

Heritage Experts

James Jay Carafano, Ph.D., a leading expert in national security and foreign policy challenges, is The Heritage Foundation's Vice President, Foreign and Defense Policy Studies, E. W. Richardson Fellow, and Director of the Kathryn and Shelby Cullom Davis Institute for International Studies.

See publications by James Jay Carafano, Ph.D.

James Jay Carafano, Ph.D.Vice President for the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, and the E. W. Richardson Fellow

Steven Bucci, who served America for three decades as an Army Special Forces officer and top Pentagon official, is director of the Allison Center for Foreign Policy Studies at The Heritage Foundation.

See publications by Steven Bucci

Steven BucciDirector, Douglas and Sarah Allison Center for Foreign and National Security Policy

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