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administration budge welcome to "this week in defense news." i'm vago muradian. the obama administration delivered its 2013 defense budget request to congress last week. a $613.5 billion plan that is 4.9% less than last year and includes the first real cuts in spending since the 1990s. more than 100,000 troops will be cut, major programs like the joint strike fighter delayed and aircraft efforts like the aircraft and the c27j transport plane cancelled. the moves were blasted by congressional republicans who accuse the president of gutting defense. defense secretary leon panetta, however, defended his budget, arguing it made the best of a bad situation driven by bipartisan legislation last year that layed our borrowing

limit but specified cuts in government spending, including $487 billion from defense overs 10 years. >> let me be clear. let me be clear. you can't take a half trillion dollars out of the defense budget and not incur additional risks. we believe they are acceptable risks, but there are risks. >> the risks could goat worse if congress fails to reach a new budget agreement with the president, staving off another $6 hawaiian become in defense cuts over the coming decade. how 86ry with the cuts? how will congress respond and how will the cuts affect the defense industry? i'm joined by rick mayes, lauren thompson, mckenzie of the conservative american enterprise institute p larry corps. guys, thank you very much for joining us. nice football but. >> lauren, let me start but. the administration previewed its budget. are there any surprises in the formal release we didn't

already know about? >> the initial reaction was fairly muted, vago, but that's because the administration rolled out its new posture on january 3 and budget priorities on january 26th. so they sort of telegraph what was coming. however, this is a very big shift. there's winners, there's losers, there's a new emphasis in terms where our focus will in the future, and i think for a lot of us the note most worthy thing that was surprising was how many weapons, programs are cut. i'm not saying they're huge, but there's a lot of them. >> mckenzie? >> i think the air force is the biggest -- and dramatically so. >> even though the conventional wisdom is the army was the biggest bill payer and they benefitted? >> that's right. it's largely a hidden cut, but the navy and the army are going to be buying more aircraft over the next five years in the united states air force by a factor, a significant factor, so i think when we're talking about risks, you're going to

see the readiness problem continue to grow for the navy and the air force. >> larry? >> well, i think if you take a look at -- it's important secretary panetta is using the wrong term. it's not a cut in defense budget, it's cut in defense program. in other words they cut $437 billion out of a projected increases in defense. if you take a look at over 10 years, i'm talking about the basic budget, not the war funding budget, it's an 8% real cult. and the seconds reagan administration, when the country had a deficit problem, we cut 10% in çreal terms, not from projected levels. so i think it's been over- dramatized. i worry it's sending the wrong signal both at home and broad that somehow the united states is disarming. >> it's a reduction in the rate of increases. >> we focus just on the base budget, we're missing a very substantial reduction that happened under obama and war funding. they've come down by 50% in overseas war funding. if you put it all together,

because money is money, the prediction in buying power for the department of defense between the peak year 2010 and the end of the five-year plan, 22%, just like -- >> after vietnam was 30%. >> not over that. >> no, no, i'll show it to you right here. >> seven-year peer, i mean. >> okay. i'll show it to you right here in this defense thing. 29.6%, from 68 to 74. okay? and remember, that with the war funding, we were higher than we were in real terms than vietnam. and i agree with you, they've used that -- that slush fund. they're already talking about taking $3 billion this year of the cuts that were supposed -- >> still a substantial cut. >> but not as big as what we did after the end of the cold war or the second reagan administration. >> cut in war funding comes because it's a 50% smaller war. we're done in part of it and we're not -- and we'll be out of afghanistan soon some be

very hard for the defense department to justify keeping that kind of money. it will -- in this era of deficit reduction the money -- >> how is congress receiving this? is this as dead on arrival at some people project? >> it's a little amnesia on the part of republicans who forget the cut is doing what they voted to do last year. so and it's not as damaging as you might think. they've pushed things, they've spread things out, delayed programs. overall, it's -- it's fairly balanced and what you don't -- you see some democrats rising to support it, and you see republicans who intend to use this as a -- political tool in particularly in southern campaigns, and complain that obama is like risk national security. >> i mean, were familiar with the republican leadership. what is their alternative? a lot of them did vote for the budget control act. adam smith has made a point. i didn't voted for it but they

can. >> there's no viable plan right now to undo this first round of cuts under the budget control act, much less sequestration that kicks in gentleman january. no defense pill will be signed into law before the fiscal year tarts in 2013 or before the presidential election so we're looking a little another cr, continued uncertainty for the department. possibly into the lame ducks session. but what members of congress have not considered is they keep saying we're going to let the voters decide and figure out sequestration on a mandate from the election. politicians haven't figured out what happens when there there is no mandate when when have continued government. sequestration looks more likely by the day. >> is there an out to sequestration? some democrats -- have a proposal? >> particularly senator carl armed services committee chairman saying last week that while this budget has big enough cuts that it accounts for the defense part of sequestration, we won't need one, and i think, well, no -- that's not how it adds up! >> right. >> but the part that is true is

if the perception is in congress that defense is given, they can change the law at any time. there doesn't center to be a sequestration. >> what is important here is you have a law and the pentagon says we're not going to plan for it. they should be planning for this because if they don't, and it is not repealed, you have chaos. but even if you do sequestration, i'm talking about the base budget here, even if you do, it's own a 17% cut over 10 years. we did at the end of -- from the second reagan administration until 1998, we did 36% real cuts. so we have done it before and we -- >> but do you personally believe they really haven't thought at all about what they would do -- >> they're actually already behaving like this is a possibility. they're starting to hold back on wording contracts. they're starting to hoard money because they're not sure they can avert sequestration. >> how much deeper at the end of the day, larry, do you think -- you were there last time this happened. how much deeper can they go?

>> i think, for example, you can go if you said to me over 10 years, i think it can do 20% real cut in the baseline budget. if you do it correctly. people say, well, you're cutting the army and the marines too much. no, you've change your strategy and you know that the garden reserve can be called up if you need them. similarly. >> greater degree now than. >> than we ever thought possible and you can do something we've done before called the high-low mix, in terms of not buy everything. my feeling is the navy doesn't want the f35. they would prefer to have the f/a-18. let them buy that. if you can straighten out the problems with the f35 for the air force and marines, okay. but if you can't, then you should not go ahead and buy something that, you know, basically costs you more -- >> the key issue here is you can cut even more than 20% if the threat cooperates. if the threat doesn't cooperate, and you get

challenges, you hadn't anticipated, you could be in trouble just cutting 20%. >> we're going to be right back in a minute to talk about programs in particular. stay tuned for more about the pentagon's

welcome back for more with our roundtable. we're violating the rule because we start with somebody different but we're going back to you because of your expertise on programs. what were the most

controversial program decisions? what will be the aggregate effect on the defense industry? >> a lot of the cuts don't actually end up being cuts over the long term. there's submarines and there's warships, that were removed -- >> tilt rotor. >> right. but you but those are pushed out into the future. they aren't just cancelled. there are some cancellations, hard to understand. the most obvious one being the very long range global hawk unmanned aerial vehicle. the air force was buying that. they have killed their most common version outright even though supposedly we're shift to go the pacific where there's a tyranny of distance. that decision is hard to understand. >> the air force' argument was the aircraft was supposed to replace the u2 aircraft under it was better at doing -- >> and the u2 is lo(ñthe venerable plane many people think it is. it has been modernized, lot of life still on it. but still it does not have the reachable. >> any particular companies hit harder than others. >> i would say the companies

that are hit the hardest were northrop because of the global hawk and also lost a major weather satellite, second time they've lost that satellite. the ship orders do okay but in the near term they'll have less cash than they anticipated. boeing continues its gradual retreat. lockheed made out pretty well. >> let me ask you about some program cancellations. on all of these changes that is -- they're ending up costing you money. larry, maybe this is a question best for you. but at the end of the day, between determination fees, the higher unit costs, doesn't it actually cost you more money when you do slips and delays like this? >> there's no doubt about it. in fact, i would argue the pentagon doesn't have a money problem. it has a management problem. over the -- john mccain on the 15th of december gave a speech on the senate floor which -- he talked about, said the f35 is a scandal and tragedy. the f-22 is the most expensive

hangar queen we ever had. you had to cancel roughly $50 billion in programs even before this year. so i think there's no doubt about it, and i would argue as i have that until you get a strong deputy like a david packwood in there this won't get under control. >> is ash carter that strong depend 90. >> it remains to be seen. we don't know yet for sure. because that's a management procurement we have not seen in his generation of being in the pentagon. >> i would have to say judging from ash carter's popularity he's made some hard choices because he's made a lot of people mad. >> depending on just treading water now. every year they're handed a continuing resolution to -- up to six months fiscal year, which is causing disruptions for contracts and bids and program managers, that kind of continued to happen this year. the overwhelming amount of cuts in the procurement account but a lot of r&d too so everybody just wants to get by to january to figure this out.

>> but let help come back to the deputy secretary ash carter, because he has been a fairly controversial figure, specifically because of the way he's done a lot of program changes overseeing programs like the f35. i think that could actually be indicative of a person willing to make hard choices and is fairly decisive. i don't think he and some of other managers have gotten enough credit for the difficult things they've done 72 but waited a second. in 2009, gates accelerated the f35 program on the advice of carter and frank kendall. and then everybody knew it wasn't ready, they did that. and then kendall comes out and says this is acquisition malpractice. why don't you guys take some responsibility? you both been promoted since then. that's the problem. i think that in terms of -- you know, spending taxpayers' money we haven't envisioned. dempsey said we haven't made hard choices. cartwright said it, dempsey's the chairman, that because the money has been flowing, you haven't had to manage the way

-- >> the biggest program that they're doing is worth almost 400 billion just to buy it. however, they've embraced it again and don't so many too think there's a major fundamental problem. >> but spreading out purchases over time and delaying them and making them more expensive is a way of politically making the risk acceptable, because you haven't cancelled the program, it might still there be. and i think in terms of facing the risk of you doesn't know what will happen in five it 10 years they don't have any choice but to do that. it's more expensive but it's not the first time or phishes pentagon management that has chosen that way out of this. >> one of reasons the air force is doing what it's doing in reducing inventory is it desperately wanted a new bomber. they said you could have it if you make new choices. it needs new tanker aircraft and that was part of the teal. have to bite hard bullets now to get your tankers and bombers in the future. >> this was a political budget

designed to win headlines and bumper stickers so we kept 11 carriers. the air force preserved the bomber. the devil is in the details and maybe in the air force shrinking new construction, 16 ships in the next to five years, new construction aircraft two to 300 in the next to five years. the big ticket items it looks like everything is okay. >> it's a political system, and i'm sure there's some politics here. but i don't think we're giving them enough credit for the -- the things they've done here. there's a lot of changes here, they've made a lot of enemies. and it's because they think that the post-9/11 priorities are now out of date and we need to move to a new strag we see. >> at the end of the day 95% of the budget will be approve because that's just what especially. 95% of the what the pentagon asks for will end up with budgeted for this year. >> stay tuned for more with our roundtable

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military times, mckenzie agreeland, lauren thompson of the lexington institute, and larry corps of the center for american progress. larry, i want to start but. you were undersecretary for -- assistant secretary for man tour during the reagan administration. does the administration have the right formula for building down the force this time around? >> i think they do, because basically since you're altering you're strategy from less nation building or counter--- more counter-terrorism, you can take the army and the marines down substantially. they've not taken them down to pre-9/11 levels, they're taking them down to 2005 levels, and i think it makes sense and now that we know how good the guard and reserve are, if you had something unexpected cue call them back. and it saves about about $15 billion a year in personnel costs. >> the three biggest challenges for this defense budget request on capitol hill start with the

base closure requests, which is very sensitive topic right now since the last round is still underway, and members have not forgotten the pain that involved. the laying off of 100,000 active duty service members and not duffing the workforce roughly 750,000 members have a problem with that priorities that what that they see in -- by the defendant department and the industry base impact of lot of these cuts as well. >> aren't those three clear signals thought not a political document. they've done some unpopular things here in terms of recommendations on health care benefits, base closures. this isn't the sort of thing that administration would do that was only thinking about re- election. >> you raise this thing about civilians. element me ask you about civilians. there is a republican proposal that surfaced to cut 100,000 civilians and freeze pay raises to get out of deeper defense cuts. will that work at all? >> new york because they'll freeze civilian salaries as part of the other legislation and it won't be around to use

for this. -- >> consumed elsewhere? >> don't forget they've done it for two years already. >> exactly. >> obama said he would veto any bill the sequestration that doesn't have -- >> if someone says congress is giving up a raise it will be okay. the pain won't be there. >> i think that civilians will be cut. i just -- i think it will end up being part of some other move when they have to make another reduction in the budget that -- you don't see it here, but it is going to happen. >> i think you have to be careful, you can't cut them but what happened in the past is when we cut them we had to rely on the contractors and at some ponte you have contractors monitoring the contracts. so i think you got to be careful. >> but the unemployment rate is so bad right now for young veterans, young combat veterans, that that is one of big concerns. we're talking maybe 150,000 troops probably. >> and potential hiring. >> to jobs that won't exist but the federal government won't be

hiring more civilians some they're hiring people in a where they won't have jobs and somebody will pay for that. >> look at there are two things i want to han which is the retiree benefits and the two minutes we have left and also brac. brac, what is going to happen with the brac? everybody recognizes it. >> brac will not pass the house of representatives this year. broke the senate armed services committee will you put in its budget because it's done this before, making a difficult decision. but i do not believe it will pass and i think that their biggest excuse is brac costs money up front. and so if you're worried about spending too much, that's the one argument you can use and congress used successfully before. it's a great idea but -- >> we'll get to it later. the paradox is when the time comes for cuts, you have the least political motivation to do it in an efficient or effective way. >> but it's an election year. nobody will vote -- >> the problem is brac is the 2005 was so badly handle that

it's got on a bad name. it was great in '88, '91 and '93. '95 was not well handled and 2005. and that's the real problem. >> brac is coming eventually bus the force structure -- >> not election. but health care, i think is a different situation. i think that the mood now is to make retirees pay more for health care. it's going to happen. i don't think it will happen like the pentagon wants. quadruple fees even if it's phased in over a period of time is probably too much for anybody to swallow now but there will be some increases. >> i think the pentagon plan is great because it's means tested. the costs go up much less -- >> because you're a beneficiary. >> i am, yes. and basically, the quadrupling basically comes for retired colonels and generals and most of whom already have another job, which i think we're forgetting in this debate. >> unfortunately that's all the time we have for now. coming up in my notebook, why it's time for both washington

and beijing to tone down the

while kaine's future leader way in america, i was in singapore where it was clear america's engagement is welcomed by allies worried by the beijing rise and sweeping claims. american warships will deploy from singapore and the philippines, australia will host 5500 u.s. marines, japan will buy the joint strike fighter. but what america sees as reassuring, china sees as encirclement. china blames america for raising tensions, forgetting its claims of sovereignty over the south and east seas in 2010 is what drove its neighbors to seek greater american involvement in the first place. the increased u.s. presence, statements and actions have given china pause. now it's time for both sides to

tone down the rhetoric. washington and beijing had link he'll in an economic co- dependency that would make any conflict mutually dever state sog neither should seek war with the other. still, china sees it severs as america as a fading power and is investing in capabilities designed to thwart u.s. military strength. washington must be especially careful not to give its leading economic partner and global competitor excuses for saber rattling or victimhood it. must let its actions speak louder than words. thank you for joining us for "this week in defense news." watch this program online or you can e-mail me at this address. i'll be back income week at the same time. until then, have a great week! alright everybody, get your heads up.

now when i was in the military, i learned that if you stand together, you can stand up to anything! no matter where i was deployed, i always knew that somebody had my back! you boys are your own band of brothers! you have each other! just like i had navy federal credit union... 24/7... live customer support! let's go! let's go! 3 1/2 million members. 3 1/2 million stories. navy federal credit union.