At Hearing, DoD Secretary Agrees with Senator Warren That the Proposed DoD Budget Should Not Increase By $90 to $400 Billion
“[T]he notion that we need to increase the total by $100 or $400 billion every year just invites defense contractors to pick taxpayers’ pockets. The American people are willing to pay to defend this country, but they're not going to sit still for being gouged by hugely profitable defense companies.”
Washington, D.C. – During a hearing of the Senate Committee on Armed Services, U.S. Senator Elizabeth Warren (D-Mass.) questioned Lloyd Austin III, the Secretary of the Department of Defense (DoD), and made the case for not increasing the DoD budget.
Price gouging by defense contractors has been a problem for a long time. Senator Warren cited the biggest defense contractors spending $15.5 billion on net stock buybacks last year, the most of any year on record. CEOs are bragging to their investors that profits will be even higher this year.
When asked if taxpayers should be expected to subsidize higher profits for contractors that are using inflation as a cover to raise prices above and beyond what’s justified by their expenses, Secretary Austin said, “no” and added, “you have my commitment, and the commitment of my entire team, that we're going to do everything within our power to make sure that we are managing contracts and monitoring behavior so that we enable the people, the United States of America, to get the best value for its investments.”
“This is a robust budget. And I think it allows us to get the capabilities that we need,” Secretary Austin said, agreeing that an additional $90-$100 billion is not necessary.
Senator Warren concluded: “[T]he notion that we need to increase the total by $100 or $400 billion every year just invites defense contractors to pick taxpayers’ pockets. The American people are willing to pay to defend this country, but they're not going to sit still for being gouged by hugely profitable defense companies.”
Transcript: Hearing to receive testimony on the
Department of Defense budget posture in review of the Defense Authorization
Request for Fiscal Year 2023 and the Future Years Defense Program
U.S. Senate Armed Services Committee
Thursday, April 7, 2022
Senator Elizabeth Warren: So in the new budget, the Pentagon is asking for a lot of money: $773 billion. But some lawmakers say this is too low, and last week they proposed adding as much as $90 to $100 billion more. The claim is that the extra money is needed because of inflation.
Now, there’s no question that inflation is raising costs across the country. But we’ve also seen big companies taking advantage of inflation to jack up prices and to pad their profit margins. That is a particular problem in industries with lots of consolidation. The defense industry, which had 51 major companies competing for defense contracts 30 years ago, today has 5. That is concentration.
Price gouging by defense contractors has been a big problem for a long time. Inspector General reports have found that defense contractors charged DoD $71 for a pin that should have cost less than a nickel and $80 for a drainpipe segment that should have cost $1.41. And CEOs are already bragging to their investors that profits will be even higher this year.
This kind of profiteering wastes taxpayer dollars, and it hurts military readiness.
Secretary Austin, let me ask you, under our budget obviously you have to account-- we have to account for cases where suppliers are increasing prices to cover higher costs elsewhere in the supply chain. We understand that. But these companies are doing very well for themselves. Should taxpayers be expected to subsidize higher profits for contractors that are using inflation as a cover to raise their prices above and beyond what is justified by an increase in expenses?
Lloyd Austin III, Secretary of the Department of Defense: Short answer, Senator, is no. And you have my commitment, and the commitment of my entire team, that we're going to do everything within our power to make sure that we are managing contracts and monitoring behavior so that we enable the people, the United States of America, to get the best value for its investments.
Senator Warren: Good. I very much appreciate that, Secretary Austin. You know, one of the things defense contractors love to do when they are flushed with extra cash, courtesy of the taxpayers, is to use it to goose their stock prices. The Pentagon’s top contractors spent $15.5 billion on net buybacks last year, sending their stock prices zooming. That is the most in any year on record ever.
But it’s not just members of Congress who are using inflation as an excuse to ask for more money from the Pentagon. I was actually troubled to hear some Pentagon officials doing the same earlier this week.
So Secretary Austin, let me ask you directly, are you comfortable with the figure in the President’s proposed budget?
Secretary Austin: I am comfortable and here’s why, Senator. You may have heard me say earlier that we went through great pains. We developed the National Defense Strategy. And we knew that our budget would have to match that strategy. And so, we went through great pains to make sure that was the case. This is a robust budget. And I think it allows us to get the capabilities that we need to support our operational concepts.
Senator Warren: Okay. And you are good on this without adding another $90 or $100 billion to it?
Secretary Austin: We certainly want to have the buying power to get the things that we need, but yes. This budget gives us what we need to get the operational capabilities.
Senator Warren: Okay, look. I think that the $773 billion for the Pentagon is already way too high, but the notion that we need to increase the total by $100 or $400 billion every year just invites defense contractors to pick taxpayers’ pockets. The American people are willing to pay to defend this country, but they're not going to sit still for being gouged by hugely profitable defense companies. And I appreciate your help on this, Secretary Austin.
I am almost out of time, but Mr. McCord, I want to remind you that you owe this committee a backlog of several years of reports on the European Deterrence Initiative. Do I have your word we're going to get that done soon?
Michael McCord, Under Secretary of the Department of Defense (Comptroller): Yes, Senator. We will get those reports.
Senator Warren: Alright. Thank you very much.
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