One reason why we shouldn't spend so much money on the armed forces is that there are other important areas we could use the money on.
and so, analyzed on that basis:
One reason: sentence subject
why...forces: relative clause (antecedent: reason)
is: main verb of sentence
that...areas: nominal clause, complementing copula 'is'
we...on: relative contact clause (antecedent: areas)
I hope that makes things a little clearer.
2) It is (structurally) a gerundive prepositional phrase functioning as an instrumental adverbial adjunct.