Department of Defense: What It Does and Its Impact

How the DoD Shapes the U.S. Economy

Iraq soldier
ISKANDARIYA, IRAQ - JULY 14: Soldiers with the 3rd Armored Cavalry Regiment participate in a patrol on July 14, 2011 in Iskandariya, Babil Province, Iraq. Photo by Spencer Platt/Getty Images

The U.S. Department of Defense provides the military power needed to protect the United States. It maintains 561,975 facilities at 4,800 sites on 25 million acres. It has more office space than Manhattan. It maintains 250,000 vehicles, 5,285 aircraft, and 293 ships. It's in charge of a multi-billion dollar global supply chain.

DoD is the nation's largest employer, with over 1.4 million active duty and 1.1 million reservists.

 It also employs 861,000 civilians. There are 450,000 employees stationed overseas in 163 countries. An additional 3 million Americans receive income from DoD, either as National Guard and Reserve forces (1.1 million), or veterans and their families (2 million).  For this reason, the DoD is also the nation's largest health care provider, serving 9.5 million military members, retirees, and their families. (Source: "FY 2016-2018 Strategic Management Plan," Department of Defense, July 2015)

Impact of DoD on the Federal Budget

The DoD budget for FY 2018 is $574.5 billion. That makes it larger than ExxonMobil ($482 billion) or Wal-Mart ($443 billion). It dwarfs the next two largest government agencies: Health and Human Services ($77.9 billion) and the Department of Education ($69.4 billion.) The Air Force gets 30 percent, the Navy and Marine Corps 30-35 percent, and the Army receives 25 percent.

The Army may receive an even smaller percent as wars end and there's less need for a large ground force. (Sources: "FY 2018 Budget, Table S-8." Office of Management and Budget, May 23, 2017. "Branches of Military Battle Over Shrinking Budget," The Wall Street Journal," August 1, 2013.)

Much of the nation's defense budget goes to contractors.

For example, almost half ($284 billion) of the FY 2014 DoD budget went to contractors. In FY 2012, there were 340,000 contracts to more than 20,000 contractors. The Big Six were Lockheed Martin ($13.6 billion), Northrop Grumman ($8.5 billion), Boeing ($6 billion), General Dynamics ($4 billion), Raytheon ($5.6 billion) and BAE ($2.9 billion). (Source: "Defense Acquistions: How and Where DOD Spends Its Contracting Dollars," Congressional Research Service, April 30, 2015. "DoD Services Contracts," CSIS 2012, DCMA.)

DoD has $2.292 trillion in assets and $2.426 trillion in liabilities. Almost 40 percent of the assets are in plant, equipment and inventory. Almost all (95 percent) of the liabilities are retirement and employment benefits. The Department has $1.312 billion in investments and Treasury securities. That's not enough to cover the $2.3 trillion in future retirement and medical benefits for veterans. Retirement benefits cost $66.8 billion each year. (Source: "Fiscal Year 2015 Performance and Accountability Report," Department of Defense.)

Keep in mind these are only the direct expenditures to support the day-to-day operations of the Department of Defense. War costs are paid out of an Overseas Contingency Operations fund.

In FY 2018, this is expected to total $64.6 billion for ongoing operations in the Middle East.  (Source: "DoD Releases FY 2018 Budget Proposal," Department of Defense.)

These figures also don't take into account $173.6 billion in expenditures made by other departments to support DoD and its defense mission. These include the Veterans Administration, the State Department, Homeland Security and the National Nuclear Security Administration.

When you add all this together, total spending to keep America secure is $824.7 billion. That's more than any other expense except Social Security. For more, see U.S. Military Budget.

    How It Affects You

    Much of how the DoD affects you is implied. That's because it protects you from something that hasn't happened yet, such as further attacks on the United States.

    The DoD budget stimulates the economy in the short term. It provides income to the 5.2 million employees or beneficiaries, not to mention the employees of its contractors. 

    On the negative side, defense spending threatens the economy in the long term by increasing the budget deficit, and thereby the U.S. debt.  

    History and Structure

    The Continental Congress established the Army, Navy, and Marine Corps in 1775 to fight the American Revolution. The Army is the main ground-force. The Navy controls the seas, while the Marine Corps is a small rapid-deployment unit. Congress created the War Department to manage these divisions in 1789. Congress created the Air Force to coordinate air power in 1947. It created today's Department of Defense in 1949. 

    In 1790, Congress created the Coast Guard to enforce laws on the seas. In 2002, it was transferred to the Department of Homeland Security. The President can transfer the Coast Guard to the Navy in times of war.

    The President is the Commander-in-Chief. Reporting to him is the Secretary of Defense. He manages these direct reports: 

    • The 7-Member Joint Chiefs of Staff, a steering committee for each branch.
    • Nine Unified Combatant Commands, the armed forces leaders for each geographical area.
    • The DoD Inspector General's Office, which reports on waste and fraud.
    • Fifteen Defense Agencies, and seven DoD Field Activities, which provide administrative and logistic support. (Source:  "About DoD," Defense.gov.  "U.S. Military 101," TheBalance.com.)