Obama's Promise to Exempt Veteran's Benefits Is Bad News for Pentagon

Exempting military vets' benefits from looming funding cuts puts the Pentagon's weapons accounts at risk.

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President Barack Obama
President Barack Obama speaks during the 113th National Convention of the Veterans of Foreign Wars of the U.S. at the Reno-Sparks Convention Center in Reno, Nevada.

President Barack Obama's Monday announcement that he will protect military veterans' retirement and health care benefits drew applause from a VFW audience, but it likely drew a few grimaces among Pentagon and industry leaders.

That's because exempting veterans' benefits from $500 billion in cuts to planned national defense spending over the next decade would shrink the places in the defense budget where cuts could be made. That would mean whatever reductions are enacted will be deeper than if the vets' benefits also were cut under a complicated process known as sequestration.

During a much-anticipated speech Monday before a Veterans of Foreign Wars audience in Reno, Nev., Obama touted a "promise I made four years ago: Upholding America's sacred trust with our veterans."

Then Obama answered a question that has been on the minds of veterans' advocates, lawmakers and Pentagon officials since the Budget Control Act was passed last summer: "Your veteran's benefits are exempt from sequestration.

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"They are exempt," Obama said, pausing as the VFW audience applauded. "Veterans' health care is protected from the budget battles in Washington."

The announcement means Obama has decided to exercise the veterans' exemption option handed him by the Budget Control Act.

If Congress fails to pass a broad debt-reduction package this year that would reduce the federal debt by $1.2 trillion, around $500 billion in separate cuts to defense and domestic entitlement budgets would go into effect Jan. 1.

While groups like the VFW are breathing easier, Pentagon officials and industry executives are bracing for impact because their budget line items would be hit harder now that veterans' programs are off the table.

The Bipartisan Policy Center, a Washington think tank, has warned that roughly half the Pentagon's annual budget will be subject to the $500 billion, decade-long cut.

Using 2012 budget figures to make its point, a recent BPC study totaled overall defense spending at $729 billion. Exempting veterans' benefits spending removes $141 billion from the total apie.

The $729 billion also includes funding for the war in Afghanistan. Not exempt. Yet.

"While OMB has indicated that the funds supporting our war efforts abroad...are subject to the sequester, we assume that [Congress] will pass legislation to exempt them," the BPC study states, referring to the White House's Office of Management and Budget.

And then there's another slice of non-exempt funding: Monies that already will be sent between Oct. 1 and Jan. 2, when the automatic cuts are slated to kick in. BPC assumes that will be around $125 billion.

That leaves only $374 billion a year from which cuts could be made annually.

Many hawkish lawmakers in both parties are pushing to strike a deal to at lest undo the first year of the automatic cuts, buying time for a new Congress to strike a broader debt-paring deal. They are particularly worried about cutting so much from just half the Pentagon's budget, which would cause more disruption to a military already troubled by a weapons-development and -buying system that has struggled to churn out large quantities of advanced weapons for over a decade.

For instance, the BPC study notes the armed services would have to buy fewer numbers of weapons.. In Pentagon weapons buying, production lines become more efficient over time, which means that slashing the number of weapons purchased drives up the cost of individual weapons.

John T. Bennett covers national security and foreign policy for U.S. News & World Report. You can contact him at jbennett@usnews.com or follow him on Twitter.

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