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Defense Spending Is The Second-Largest Expense Item After Entitlements, But Below Long-Term Trend as Share of GDP ¢ With budget deficits rising, some advocate cutting back on defense spending, the second-largest expense item after entitlements. ¢ Defense spending has risen substantially in recent years, due to the wars in Afghanistan and lIrag, and other costs related to the Global War on Terror. As a percentage of GDP, however, defense spending in the U.S. remains below its 60- year trend. ¢ On an inflation-adjusted basis, U.S. defense spending is at its highest level since World War Il. With overhead ~40% of all spending, the Defense Business Board found DoD consistently pays “more for less” and fails to attack overhead as the private sector would. ¢ The Esquire Commission to Balance the Federal Budget, a group of four former Republican and Democratic senators, found over $300 billion? in defense restructuring opportunities, and other analysts proposed gradual cuts to reduce the defense budget by 14% by 2018. ? Notes: 1) The Defense Business Board , “Reducing Overhead and Improving Business Operations, “July 2010, http://dbb.defense. gov; 2) see Esquire Commission to Balance the Federal Budget, http:/Avww.esquire. com/blogs/politics/federal-budget-statistics-1110.; 3) Gordon Adams and Matthew K P Leatherman, “A Leaner and Meaner National Defense,” Foreign Affairs, Jan/Feb 2071) (@ 4 www.kpcb.com USA Inc. | Income Statement Drilldown 63 Defense Spending Has Risen, Driven by Wars in Afghanistan + Iraq... USA Inc. Inflation-Adjusted* Defense Spending by Type, F1948 - F2010 = Other Vietnam War « RDT&E* $400B --- = Procurement = Operations & $200B --- Maintenance U.S. Inflation-Adjusted Defense Spending ($B) =u Personnel $B 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 Note: *Adjusted for inflation using GDP price index. **RDT&E is Research, Development, Test & Evaluation. KP Source: White House OMB. (@ EB) www.kpcb.com USA Inc. | Income Statement Drilldown 64 HOUSE_OVERSIGHT_020873