The evolution of the US defense budget reflects the continued rise of the United States and the transformation of war into a sustainable mode of organization for the federal government. Before 1914, military spending accounted for barely 1% of GDP, reflecting a continental power focused on domestic development.
World War II marked a historic turning point. In 1945, defense absorbed nearly 41% of GDP, marking the total militarization of the economy and the birth of the military-industrial complex symbolized by the construction of the Pentagon.
After 1945, the share of the budget fell back to around 10% of GDP, but without returning to its pre-war level. The National Security Act of 1947 institutionalized national security with the creation of the Department of Defense, the CIA, and the NSC, establishing defense as a structural pillar of government.
During the Cold War, spending fluctuated between 6% and 9% of GDP, reflecting the logic of containment and nuclear rivalry with the USSR. The end of the Cold War led to a relative disengagement: the budget fell to around 3% of GDP in the 1990s, marking the « peace dividend ». But the attacks of September 11, 2001, led to rapid rearmament: spending reached 4.8–5.7% of GDP around 2010, driven by the wars in Afghanistan and Iraq and the militarization of domestic security.
In 2025, the overall budget amounted to approximately $1.365 trillion, or 4.6% of GDP.
It consisted of $926.8 billion for the DoD, $372.2 billion for veterans, and $66.5 billion for foreign aid. This structural inflation can be explained by doctrinal modernization (multi-domain warfare, AI, cyber, space), rising personnel costs, and the proliferation of foreign engagements.
Beyond the numbers, US military spending has become a systemic instrument of power. It supports innovation, employment, and national competitiveness while consolidating US global leadership. Stabilized at around 4–5% of GDP, the defense budget reflects less a reduction in effort than a permanent institutionalization of war, confirming the persistence of the military-industrial complex and the centrality of defense in US governance and strategic projection.
The Defense Appropriations bill for Fiscal Year (FY) 2026 provides a base discretionary total of $838.7 billion, of which $838.5 billion is categorized as defense spending and $180 million as nondefense spending. The bill seeks to address growing adversarial alignment, adversaries’ growing defense investments, current U.S. capability gaps, readiness challenges compounded by high operational tempos, and the need to maintain American military superiority and deter aggression.
The bill also provides funding to help address critical munitions shortfalls and the harm caused by the stagnant defense budgets and significant inflation during the previous Administration. In July 2025, the Senate Appropriations Committee advanced the bill by a vote of 26-3. In that same month, the House passed its companion bill by a vote of 221-209.[1]
Top Republicans in Congress want more money for defense. They say the White House’s budget architects are using accounting tricks to stretch national defense funding past the trillion mark. They point out the president’s proposal is relying on an extra $119 billion for defense from a separate, still-in-the-works piece of legislation that Trump has called the “big, beautiful” reconciliation bill. Unlike with a typical spending bill, Republicans, who control both the House and Senate, only need a simple majority to push through this bill, which avoids the risk of a filibuster in the Senate.
Trump’s Office of Management and Budget Director Russell Vought insisted that the White House had a crafty strategy in mind: “…reconciliation ensures that the money is available when needed, and not held hostage by Democrats to force wasteful non-defense discretionary spending increases as was the case in the President’s first term.”
But House and Senate Republicans in the Armed Services committees had intended money from the reconciliation bill[2] to be a sweetener to an already-accelerated defense spending plan. They want it to bankroll major initiatives[3], like providing $24.7 billion to kickstart Trump’s Golden Dome anti-missile shield and throwing an extra $33.7 billion into shipbuilding on top of the tens of billions the U.S. is already spending to modernize its fleet. The chart below provides a closer look.
In summary, the Trump administration is expected to front-load defense appropriations included in the One Big Beautiful Bill Act in fiscal year 2026, driving defense spending above $1 trillion (+15% year-on-year).
This to boost real GDP growth by 0.2 percentage points next year, with a larger gain in 2026 inhibited by existing production and labor capacity constraints.
Over the long run, meeting the new NATO defense spending targets will necessitate hundreds of billions of dollars in additional annual appropriations which could be fiscally challenging for the U.S.
For U.S. defense spending to hit 3.5% of GDP in the year 2035, the defense budget would have to grow by roughly 40% – equal to an extra $400 billion per year – relative to the fiscal year 2025 budget. If the U.S. were to try to meet the full 5% NATO target through defense spending, which is not required under the existing agreement, then the defense budget would need to rise by nearly $1 trillion by 2035.
Finding hundreds of billions of dollars in additional annual appropriations will not be an easy task in the current fiscal environment. The nation’s aging population is expected to drive cumulative expenditures on the largest federal programs including, Social Security, Medicare, and Medicaid, 72% higher by 2035 according to the Congressional Budget Office. That equates to nearly $2.5 trillion dollars in additional annual spending. This, in addition to the rising cost of financing the growing national debt burden, is part of the reason why finding hundreds of billions in additional annual funding for defense by 2035 could prove to be a challenge for the federal government given it would likely require difficult political decisions.
Over the near-term, defense spending related to the OBBBA ( One Big Beautiful Bill Act) is expected to provide a boost to real GDP growth of 0.2ppts in 2026, with additional modest support provided in the following years. Despite earmarked funds from the OBBBA to shore up manufacturing and labor capacity, existing backlogs and labor supply shortages are likely to remain a headwind to defense spending for the foreseeable future. Over the long term, meeting higher defense spending targets in accordance with the new NATO commitments could be a challenge for the U.S. amid the evolving fiscal capacity landscape.
[1] Courtesy of Senate Appropriations Committee – Majority.
https://www.appropriations.senate.gov/imo/media/doc/fy26_defense_bill_summary_conferenced.pdf
[2] Republicans Unveil Pentagon Portion of Trump’s ‘Big, Beautiful Bill’ with Extra Money for Barracks. https://www.military.com/daily-news/2025/04/28/85-billion-barracks-improvements-other-military-quality-of-life-issues-included-trump-agenda-bill.html
[3] https://armedservices.house.gov/uploadedfiles/hasc_reconciliation_overview.pdf