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CBO Projects Defense Spending Under Sequestration; Warns of Recession

Aug. 22, 2012 - 04:30PM   |  
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The United States could slip into a recession if Congress fails to modify planned spending cuts and tax increases set to start next year, the nonpartisan Congressional Budget Office (CBO) projects in a new report.

As for the military budget, CBO provides projections assuming that military spending cuts totaling nearly $500 billion over the next decade — mandated by the Budget Control Act of 2011 — go into effect.

With the so-called sequestration cuts, CBO projects a $547 billion baseline defense budget in 2013, $509 billion in 2014, $508 billion in 2015, $520 billion in 2016 and $526 billion in 2017.

“These figures are a bit suspect to us, as CBO doesn’t say whether it has included Military Personnel [MilPers] in the reduction or, as [the Office of Management and Budget] has stated, excluded MilPers,” Byron Callan, an analyst with Capital Alpha Partners, wrote in an Aug. 22 note to investors.

“If MilPers is excluded, we would expect a slightly lower rate of change in [2013], a similar rate of change in [2014] and another modest decline in [2015] in defense outlays. This is because of longer spend-out rates in Procurement, [research, development, test and evaluation], and [operations and maintenance] categories.”

Without sequestration cuts, CBO projects defense spending at $571 billion, $560 billion, $561 billion, $574 billion and $581 billion across that same five-year period.

So-called sequestration would not impact war spending, so that funding is projected out as increasing over the 10-year period reviewed by CBO, despite the fact that those accounts will likely decrease and disappear as the U.S. ends combat operations in Afghanistan.

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