Since Adam Smith’s The Wealth of Nations hit the presses, leaders have known the importance of government-run militaries. When it comes to national defense, most market-based alternatives are both unviable and downright risky. It should go without saying that some countries, such as the United States, believe in the importance of national defense more strongly than others. Per World Bank, the United States spends just over three percent of its national budget on defense and defense-related items.
Though, when one considers just discretionary spending, the annual military costs take up more than half of all available funds. Throughout history, that number has fluctuated wildly. For example, since 1988, defense spending has dropped by just over 2.3-percent. The inauguration of a new Commander-in-Chief represents the dawning of a new age for the military, active service members, and the banking industry that exists to serve their diverse set of needs.
It’s time to examine just what a Trump presidency signifies for the United States and the banking industry.
President Donald J. Trump: Defender of the Military?
Before diving into what exactly the 45th President might do, it’s useful to examine the paths taken by other national leaders. Here’s a snapshot of how four recent presidents felt about military expenditures and how the military grew, or floundered, under their administration:
- Ronald Reagan: Since World War II, the defense industry had remained relatively unchanged. Pentagon budgets declined. Inventory dropped. Equipment fell into disarray. Ronald Reagan was determined to change that. According to The Washington Post, Reagan’s policy of military expansion helped develop the first instances of stealth technology, as well as both the F-15 and F-16. Much of this money was donated to procurement and military research. In 1987 this spending peaked at about $456.5 billion.
- Bill Clinton: The military’s circumstances changed when Bill Clinton took office. Most funds dedicated to Reagan’s defense initiatives were quickly scrapped. However, Clinton did not withdraw completely from the military. In his time as commander-in-chief, he sent soldiers to assist in various humanitarian crises around the world. The sitting congress at the time was hostile towards any attempts to expand the military’s budget. Forty-thousand troops were removed from Europe and various commissions recommended the closure of 80 bases. During his presidency, military budgets fell to just 60-percent of those seen in 1985.
- George W. Bush: When Bush took office, military leaders were so assured of their current state of peace that they proposed a two year ‘strategic pause’. The incidents of 9-11, however, brought an abrupt halt and reversal to these plans. Military budgets rose as new technology and improved infrastructure took center stage. By the time that he left office, United States defense spending accounted for more than half of the world’s total.
- Barack Obama: Obama was the first President of the United States to spend more money on welfare programs than on national defense. This slim down, along with moving away from hard military might, made him unpopular with many service men. For his supporters, though, Obama will forever be known as the Nobel Prize winner who eliminated both Bin Laden and military operations in both Iraq and Afghanistan.
Since the end of the Iraq War, defense spending in the United States has been in steady decline. After peaking at $691 billion, the 2016 fiscal year ended with approximately $585 billion in military spending. Experts at the Department of Defense, anticipating the moves of the newly-installed administration, predict that spending will hit $591 billion by 2020. If Trump is to be believed that estimate might be, if anything, too low.
A single sentence spoken by Trump during an interview with Fox News explains his position on the military rather well. The President said, “I want a balanced budget eventually. But I want to have a strong military. To me, that's much more important than anything.” For anyone who followed the man from the campaign trail and into the White House, this statement should come as no surprise. Since cinching the election in November, Trump has repeatedly promised to drastically increase support for the United States military. His plans include increasing the number of active duty soldiers to 540,000, expanding the US fleet to 350 ships, growing the air force to 1,200 fighter craft, and bringing the marine corps to a full 36 battalions. In addition, he’s looking to rebuild much of the nation’s aging nuclear arsenal and military infrastructure.
The new President seeks to balance the cost by requesting members of NATO to provide reimbursement for the protection of the United States military, repealing the defense sequesters, and decreasing the number of government employees. The Committee for a Responsible Federal Budget determined that the net cost of his plan still totals roughly $150 billion. While some believed his military plans to be the promises of a campaigning man, he took huge steps towards making them a reality within his first month in office.
Could Trump Represent a Military Revival?
On January 27th, President Trump signed an executive order launching a “great rebuilding of the Armed Forces”. In addition to the comments he provided to Fox News, the Commander-in-Chief emphasized his support for the military on numerous occasions. In fact, per an article by The Washington Post, he followed his order with a promise to “always have their [the military’s] back. His executive order put forward the following items:
- Under his leadership, the United States will encourage peace through deterrence. It shall do so by increasing the technology and equipment available to the armed forces.
- A mandatory readiness assessment will be conducted by the Secretary of Defense within 30 days of Trump taking office. The Secretary will then provide a list of improvements that can be made to improve readiness conditions. Within 60 days of the President assuming his post, the Secretary shall submit a plan of action to reach peak readiness no later than 2019.
- The President and the Director of the Office of Management and Budget will develop a Fiscal Year 2017 Budget amendment that adjusts for the costs of military readiness.
- All efforts will be made to rebuild United States defense equipment, manpower shortages, and ailing nuclear technology.
In short, much like the Reagan presidency, Trump represents a new dawn for the US men and women in uniform. It’s not just him making a difference, however, it’s his administration.
What Trump’s Military Expansion Means for Service Members and Those Around Them
Perhaps emboldened by the election of a pro-military candidate, congress undertook a variety of actions to benefit the military in January. For one, they rejected a proposal seeking to limit the military housing stipend. In addition, the legislature approved a 2.1-percent military pay raise. This amount, which keeps lock-and-step with private sector wage growth, went above and beyond the percentage suggested by the Pentagon. To junior servicemen this represents an annual pay bump of about $550 dollars. That’s money that can be invested, grown, and utilized to grow the economy around them.
The private sector will also benefit from this pay boost and Trump’s pro-military policies. According to Investopedia: “Jobs are a big part of the economic impact of military spending. Of course there are the active troops, but there is also a considerable infrastructure built up around them that requires contractors, traders, consultants, and so on to support the military.” While there’s some arguments that military-based industries hurt the rest of the economy, that’s not been proven. Besides giving a new avenue to grow the private sector, the expansion of national defense services can help to engender a feeling of safety for business owners, investors, and even banks. It’s not without reason that economies tend to experience prosperity during, and shortly after, wartime.
The Banking Benefits of the Military
Those in the military pose a special set of challenges to legal, insurance-related, and financial institutions. They’re often away from home for long periods of time and face a higher chance for injury than your average worker. To help our men and women in uniform, the government and private sector have provided a few unique solutions.
- Servicemembers Civil Relief Act (SCRA): The spiritual successor to the Soldiers’ and Sailors’ Civil Relief Act (SSCRA) of 1940, the SCRA provides special rights and protections to individuals who served. It’s well-recognized that those who serve face unique obstacles when it comes to attending court, jury duty, and custody battles. In addition, these men and women deserve benefits for their service that go above and beyond those offered to civilians. That’s why the United States Congress made two amendments to this law in 2003 to better provide for needs specific to members of the military. These include protecting military families from life insurance cancellation, and making them exempt from taxes in many United States jurisdictions. Military.com lists more specific benefits of the SCRA including:
- An expansion of a preexisting law that protected servicemembers and their families from evictions due to non-payment. The monthly amount covered by SCRA varies year to year.
- A provision that allows a servicemembers facing a change of station to terminate a housing lease, vehicle lease, or phone contract without penalty.
- Limits all charges incurred prior to military service to an interest rate of 6-percent. Anything above that amount is to be permanently forgiven by the lender
- All SCRA benefits expire within 90 days of being discharged from active duty.
- United States Service Automobile Association (USAA): In addition to the benefits offered by SCRA, military members and their families have access to the services offered by the United States Service Automobile Association (USAA). This includes specialized insurance coverage, banking, investment planning, and a wide variety of travel-related perks. By the end of 2015, this Texas-based group of Fortune 500 companies boasted 11.4 million members and more than 16 locations. The association’s main headquarters, located in San Antonio, holds the title of largest single-occupancy building in the world. As the USAA has no shareholders, all its profits are either retained to strengthen current offerings or shared among its members. In 2015, USAA returned $1.6 billion to its members.
Introducing the Perfect Marriage of USAA and American Express
The military now has one more perk the rest of the world can’t access: the USAA Rewards American Express card. Named one of the best cards for active military families by The Simple Dollar, the USAA Rewards™ American Express® Card was created with servicemen and servicewomen in mind. This card offers the following benefits:
- Zero annual fees and a low interest rate
- One point earned for every dollar spent on everyday purchases
- Twice the points when swiping your card at the grocery store or gas station
- Twenty-five hundred bonus points on your first purchase
- Zero foreign transactions fees when travelling outside the United States
- Redeem points for cash, merchandise, gift cards, and more
By bringing the USAA into the decision-making process, American Express ensured the creation of a card that perfectly suits the needs of the modern-day military family. Any soldier looking for a card as loyal as they are should look no further.
Thank you for your service