White House Prepares to Slash Billions from Defense
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A week after the legally-required deadline, the White House released their plan about automatic budget cuts set to take effect on January 1, 2013, one part of the “fiscal cliff.” It’s not pretty for the Defense Department. From Politico:
There would be a 9.4 percent cut to most defense programs — except those exempted in the sequestration law — and a 10 percent cut to a handful of other Pentagon accounts that are not subject to annual congressional appropriations.
Politico quotes from the report that there will be “delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts, and reductions in base services for military families.”
The Washington Times has more specifics:
The Army is slated to lose nearly $7 billion in operations and maintenance funding, and the Navy and Air Force will lose another $4.3 billion each in operations money.
The specter of these automatic spending cuts is creating uncertainty for small and mid-sized companies that supply defense companies. A number of defense contractors expressed their concerns to Senators:
Robert J. Stevens, Lockheed Martin Chairman and CEO: “[Sequestration] will cause dramatic program and personnel dislocation within our industry, with our government customers, and will disrupt the lives of a significant portion of our 120,000 employees and their families. … [W]e do not know how many of our 40,000 supplier contracts may have to be broken … In fact, we are very concerned that the most vulnerable segment of our supplier base is the over 12,000 small and minority businesses …”
William H. Swanson, Chairman and CEO of Raytheon Company: “All of our suppliers could be affected by sequestration, but the impact on our small business suppliers could be particularly pronounced…. [T]hese small businesses are particularly susceptible during times of economic uncertainty or distress.”
Sean O’Keefe, EADS Chairman and CEO: “[W]e and our suppliers are left to wonder how and if our businesses will be disrupted as a result of sequestration, not only in the defense sector, but commercial activity as well. The most vulnerable of these aerospace and defense suppliers are the vast number of small to mid-cap businesses that sustain millions of jobs, drive technology and create the innovation that is the hallmark of American aerospace.
Mackenzie Eaglen, defense analyst at the American Enterprise Institute, concludes:
The key point of their correspondence is not that layoffs are coming as a result of sequestration but that thousands of jobs are going unfilled or being lost now due to uncertainty in an already fragile economy.
Should Congress and the administration fail to avoid taking us over the fiscal cliff and fix the automatic spending cuts and tax increases set to happen in 2013, we could head straight into a recession. A wide swath of business associations strongly urged Washington to act now.