Defense Spending: The National Defense Authorization Act and Military Budget

The annual National Defense Authorization Act establishes defense spending levels, authorizes military personnel strengths, sets military pay rates, and provides policy guidance across the full range of defense activities. The NDAA process begins with the President's budget request, followed by markups in the House and Senate Armed Services Committees, floor action in both chambers, conference negotiation, and presidential signature. The NDAA authorizes programs but does not appropriate funds, which requires separate action by the Appropriations Committees through the defense appropriations bill.

The defense budget is structured around four major categories: military personnel, operations and maintenance, procurement, and research and development. The current period of defense spending growth reflects the National Defense Strategy's focus on strategic competition with China and Russia as the primary challenge to U.S. national security, requiring investments in advanced capabilities while sustaining readiness for ongoing operations and potential contingencies across multiple theaters.

Defense spending is subject to the Budget Control Act framework as modified by subsequent legislation. The Fiscal Responsibility Act of 2023 established discretionary spending caps for FY2024 and FY2025, with defense spending growing approximately 1% in nominal terms. Military compensation includes basic pay (adjusted annually based on the Employment Cost Index), allowances for housing and subsistence, the TRICARE health insurance system, and the Blended Retirement System combining a defined benefit pension with Thrift Savings Plan contributions.

The defense acquisition system is governed by Title 10 of the U.S. Code, the Federal Acquisition Regulation, and the Defense Federal Acquisition Regulation Supplement. Recent acquisition reforms have sought to accelerate the delivery of capabilities through middle-tier acquisition pathways, software acquisition reform, and other streamlined procedures. The Major Defense Acquisition Programs portfolio includes dozens of programs with total estimated costs exceeding $2 trillion.

Congress regularly considers the appropriate level and composition of defense spending. Options include increasing spending to address capability gaps and readiness shortfalls identified by combatant commanders, maintaining current spending levels with reallocation among priorities, or reducing spending growth to address fiscal constraints. Specific areas of debate include the size of the Navy fleet, the pace of nuclear modernization, investment in emerging technologies (including AI, hypersonic weapons, and directed energy), and the balance between force structure and modernization.

Military compensation reform proposals include restructuring healthcare benefits, adjusting housing allowances, and modifying recruitment and retention incentives to address persistent shortfalls in meeting military recruiting goals. Acquisition reform proposals focus on expanding the use of commercial technology, reforming cost estimation and oversight, incentivizing innovation through prize competitions and other transaction authorities, and strengthening the defense industrial base.

The FY2025 NDAA included a military pay raise, authorities for new acquisition programs, provisions addressing China competition, and various personnel policy changes. Recruiting challenges have prompted the services to expand enlistment incentives, adjust standards, and invest in marketing. The defense industrial base faces capacity constraints in key areas including shipbuilding, munitions production, and microelectronics. Congressional oversight has focused on the implementation of the National Defense Strategy, AUKUS submarine cooperation, Ukraine security assistance, and the readiness of the Joint Force for potential conflict scenarios.