The Pentagon’s welfare racket needs to end

With tensions in Iran still boiling and our national debt hitting $40 trillion, it’s time to take a hard look at the military’s budget. We should preserve what the military needs to be capable and prepared — and cut the waste.

One little-known program has not only failed its mission but also driven excess government spending. The good news is that Secretary of War Pete Hegseth has already announced a review. The bad news? This program is so fundamentally defective that it should be abolished outright.

Every actor in the system profits from the abuse.

In the summer of 2024, a “socially disadvantaged” small business won two Defense Logistics Agency contracts worth more than $34 million. The firm then handed 95% of one contract’s value to Lockheed Martin and 94% of the other to a subsidiary of Leonardo DRS, two of the world’s largest defense contractors. The disadvantaged firm did little more than sign the paperwork and collect a fee.

The arrangement broke no law. It followed the standard business model of the Small Business Administration’s 8(a) Business Development Program, the federal government’s oldest identity-based contracting scheme — and one of Washington’s most durable corporate welfare rackets.

In January, Secretary Hegseth announced that the Pentagon would take a “sledgehammer” to the program and ordered a line-by-line review of every small business sole-source and set-aside award above $20 million. As he put it: “In many, many instances, these ‘socially disadvantaged’ businesses, they don’t even do work. They take a 10%, 20%, sometimes 50% fee off the top and then pass the contract off to a giant consulting firm.”

Hegseth has diagnosed the disease, but a contract review will not cure it. Several administrations and Congresses have tried to fix the 8(a) program. But all of them have failed because its own incentives reward the abuse. Congress cannot regulate those incentives away; it wrote them into the program’s design. The only reform that will work is to abolish the 8(a) program entirely.

Congress created the modern program in 1978, when it amended Section 8(a) of the Small Business Act to steer noncompetitive and set-aside contracts to firms owned by “socially and economically disadvantaged individuals.” The SBA promptly defined that term to cover nearly every racial and ethnic minority group while excluding white Americans. Lawmakers promised that nine years of preferential treatment would turn these firms into independent competitors. Nearly half a century later, the program has produced the opposite: a permanent class of pass-through firms selling access to the defense giants.

A Claremont Institute investigation found the same pattern under administrations of both parties. In 2011, under President Obama, EYAK Technology LLC subcontracted $2.6 million of a $2.9 million Army manufacturing contract — 91% of its value — to L3Harris Technologies.

Between 2009 and 2025, L3Harris received 47 subcontracts from 8(a) firms through the Department of Defense under prime contracts worth nearly $1 billion, and eight of those subcontracts exceeded 90% of the prime contract’s value. General Dynamics, Lockheed Martin, and other giants worked the same racket.

Reforms to the program keep failing because enforcement would require a small army of compliance officers. Even worse, every actor in the system profits from the abuse.

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EDUARDO SOTERAS/AFP/Getty Images

The 8(a) firms earn millions and face no pressure to build real capability. The defense giants pad their bottom line by accessing set-aside contracts they could never win directly. The contracting agency fills its procurement needs and hits the SBA’s small-business goals on paper. Nobody at the table has a reason to flip it over. The structure rewards dependency, not the development the program promises.

The program’s defenders blame a few bad actors, but the abuse flows from the design itself. Any program that confers preferential treatment on a favored class will produce the same result.

When government channels public money to a group in the name of solving its problems, the intended beneficiaries grow more dependent while middlemen and incumbents prosper at the taxpayer’s expense.

The Trump administration has made some encouraging early moves. The SBA demanded three years of financial records from participants and suspended roughly 1,000 firms that failed to produce them. Secretary Hegseth’s contract review shows the same willingness to act.

But audits and reviews leave the machine intact, and the next administration can switch it back on. As long as the program exists, the incentives will win.

Congress and the administration should stop trying to perfect the unreformable. After 48 years, the 8(a) program has failed its stated purpose and wasted taxpayer dollars while enriching prime contractors, pass-through firms, and the bureaucracy that certifies them. Secretary Hegseth should swing his sledgehammer through the program’s foundation and shut it down for good.

Editor’s note: This article was originally published at the American Mind.