The threat of massive cuts to the US military next year is already having a “chilling effect,” with devastating impacts looming for the defense industry, chief executives warned US lawmakers Wednesday.
A $1 trillion slash in military and domestic spending, known as a sequester and written into last year’s Budget Control Act, was designed to be so painful that both sides would do whatever was necessary to avoid such automatic cuts.
But with less than four months before the general election and half a year before the January 2 deadline, Republicans and Democrats are deeply divided by how to reduce the deficit and avoid what lawmakers have come to call the “fiscal cliff.”
Congress failed to reach a deal in time to find a way to reduce the long-term deficit by $1.2 trillion, and a precarious reckoning faces Americans in early January if Congress does not act, with all Bush-era tax cuts set to expire and substantial defense and civilian cuts kicking in.
The Congressional Budget Office has warned such a scenario could send the nation into another recession. Analysts and industry reports say barreling over the fiscal cliff could cost between 700,000 and 2.1 million jobs.
And Defense Secretary Leon Panetta has warned that the sequester would do “catastrophic damage” to the US military.
“If sequestration happens, it will be a blunt-force trauma to industry and to America,” Robert Stevens, chairman and chief executive of major US defense contractor Lockheed Martin, told a House Armed Services Committee hearing.
“We’re concerned that it will tear the fabric of the supply chain, the industrial base and our national security in significant and irreparable ways.”
He said the looming cuts are “already having a chilling effect on the industry,” through reduced hires, slashing of training programs and the “fog of uncertainty” in which the industry has no guidance from Washington on how to prepare their bottom lines for 2013.
Sean O’Keefe, EADS North America chief executive and chairman of the National Defense Industrial Association, said such uncertainty is leading suppliers to tell him “they are already preparing to trim payrolls.”
“We fear that the government’s reluctance to make difficult choices and apply a well-aimed fiscal razor will mean that the federal budget, and particularly defense, will get the equivalent of a shave with a chain saw,” he told lawmakers.
The House of Representatives was set to vote later Wednesday on legislation that would compel the White House to detail how next January’s sequester would impact the US economy.
Democratic Senator Patty Murray infuriated conservatives this week when she said Democrats were prepared to let all Bush-era tax cuts expire if Republicans were unwilling to end them for wealthy Americans.