Thoughts on U.S. defense budgeting discussions

This month I would like to share my perspective on the current U.S. defense budgeting discussions and the prospective impact of Congressional actions on the states.  I believe that this is a somewhat under-recognized issue, and that the future impact of the currently planned budget reductions on the states could be more significant than may be recognized.

Earlier this month, the Aerospace Industries Association released a study it commissioned, “The Aerospace and Defense Industry in the U.S: A financial and economic impact study,” which covered both Federal defense expenditures as well as expenditures within the commercial aerospace sector.  My organization, Deloitte LLP, wrote the study.

Here are some of the key findings:

  • The aerospace and defense industries contribute 2.23 percent to US GDP.  The commercial defense industry generated $324 billion in company revenues and directly employs 1.05 million individuals in the U.S. with another 2.5 million indirect employees spread over every state in the nation.
  • The industry accounts for corporate income, individual income, Social Security, Medicare and FUTA taxes totaling some $38 billion. That does not include the additional sales, property, investment, excise, utility, highway and other taxes paid that support local, state and Federal government budgets.
  • These expenditures are concentrated in the following states (in declining order): California, Washington, Texas, Arizona, Florida, Connecticut, Virginia, Kansas, New York and Pennsylvania.

The report has been receiving significant attention in Washington and I would certainly encourage you to review it at your convenience, particularly if you are a leader in one of the affected states.

Reviewing the role of the National Guard

The National Guard program is also receiving a fair amount of attention nationally and obviously plays an important role in every state.  As you may have read, Congress recently acted to include the leader of the National Guard as a member of the Joint Chiefs of Staff.  This was reportedly enacted to assure that the needs of the National Guard are properly considered in the overall defense budgeting and resource allocation processes.

This is an important area of concern for state and local governments.  There are over 400,000 active Guard members across the states and an annual appropriation level exceeding $25 billion.  I believe most Governors are interested in assuring that the National Guard in their state is properly resourced and staffed, given the significant demands and resource drain of the recent war efforts.

The continuing discussions around the Federal deficit will unquestionably consider the appropriate resource commitment to the defense sector.  I believe that the above findings will be important considerations as Congress continues to address our deficit spending levels and starts to address the new debt ceiling which will be encountered late this calendar year.

Mr. Robert N. Campbell III is Vice Chairman, Principal, Deloitte LLP and is the U.S. State Government Leader, based in Austin, TX

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