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Government, Politics & Issues

'Sequester' threat worries defense firms but could spur deficit deal

This article first appeared in the St. Louis Beacon, June 15, 2012 - WASHINGTON – Last summer’s congressional creation of a pumped-up super committee – along with a bogey-man “trigger” to goad that powerful panel into action – did not exactly spur heroic action to slash the nation’s deficit.

The super committee fell victim to the partisan kryptonite of politics last November. And the bad-guy “trigger” of $1 trillion in automatic cuts over nine years, called sequestration, is now primed to fire at the beginning of January.

If it fires, Missouri’s defense industry would likely be one of the wounded, as sequestration’s biggest hits would strike Pentagon spending. But that’s a big “if,” given that few in Washington – either on Capitol Hill or at the White House – believe that $500 billion in across-the-board Pentagon cuts make much sense.

“I think it would be an inordinate hit on the strength of our military ... we’ve got to find another way,” U.S. Sen. Claire McCaskill, D-Mo., told reporters. “I do think, however, the fact that [sequestration] could happen will keep everyone talking” about long-term solutions to address the deficit.

That’s why McCaskill doesn’t think it’s a good idea for congressional Democrats to cave unilaterally on sequestration – a bargaining chip to reach a wider deficit deal. Many other Democratic lawmakers, including the second-ranking Senate Democrat, U.S. Sen. Dick Durbin, D-Ill., also say the leverage is needed to forge a compromise.

But U.S. Sen. Roy Blunt, R-Mo., the No. 5 Senate Republican, said Wednesday that the economy might face damage if the meat-axe sequester threat is not removed soon. “I think that some [job] elimination notices have to go out by Oct. 1 or so if we’re going to stop programs on Jan. 1,” he told reporters.

Both McCaskill and Blunt had voted for the Budget Control Act last August that set up the super committee and sequester trigger. (Nineteen Senate Republicans and seven Democrats voted no.) Both had expected the super committee to reach a deficit deal, which didn’t happen by the Thanksgiving deadline. And now GOP lawmakers are pushing for a different approach.

“Across-the-board cuts are the worst kind of cuts to make. It’s a cut that shows that people are not willing to make the tough decisions that need to be made,” Blunt said, asserting that “it’s the president’s job to deal with this” – even though Congress created and set in motion the sequestration mechanism.

Blunt added: “I frankly wouldn’t be at all surprised if the president steps up in the next few weeks and says, ‘With the economy in the position it’s in, this is no time to deal the economy another blow by eliminating jobs.’ “

U.S. Rep. Todd Akin, R-Wildwood – who had voted against the deficit deal last August, in part because of the sequestration threat – said he backed the U.S. House alternative, the Sequester Replacement Reconciliation Act, which aims to shift the burden of budget cuts to non-defense programs.

The bill, which the House passed last month on a party-line vote of 218-199, would replace the sequester cuts with a hodgepodge of reductions in domestic spending, including defunding parts of the Affordable Care Act, tightening enrollment restrictions for Medicaid, and capping damages on medical malpractice awards. All of Missouri’s GOP House members supported the bill; the state’s Democrats voted no.

Rep. Chris Van Hollen, D-Md., the ranking Democrat on the House Budget Committee, called that approach unfair. “Over 22 million households with kids would see their food and nutrition support reduced; 300,000 kids knocked off the school lunch program; 300,000 kids knocked of the children’s health insurance program,” Van Hollen said.

Akin and other House Republicans, including Budget Chair Rep. Paul Ryan, R-Wisc., brush aside such complaints and say their plan would achieve $243 billion in deficit reduction without raising taxes.

“We have a way to do it,” said Akin, who chairs a House Armed Services subcommittee. “The question is: Is the Senate going to do it? I don’t give them much credit for doing anything at all.”

Automatic defense cuts would hit Missouri, Illinois

Fearing sequestration’s impact in Missouri, Blunt said this week that he has “asked for a review of the job numbers in our state that relate to defense projects that wouldn’t go forward if sequestration occurs.”

A recent state-by-state report by the pro-defense Center for Security Policy  asserted that possible revenue losses by Missouri’s defense contractors – led by the Boeing Co. warplane operations in Hazelwood – could amount to $1.63 billion a year, assuming an 18 percent cut. The Illinois loss was estimated at about $1.2 billion a year.

While calculating possible job losses from sequestration is a stretch, the center’s speculative analysis suggests that across-the-board cuts could lead to the loss of 2,988 active-duty military and 2,496 civilian defense jobs in Missouri over nine years. Direct and indirect losses of jobs by contractors and suppliers could top 30,000, the study asserts.

In Illinois, the report predicted a loss of 1,685 active duty and 3,943 civilian defense jobs, as well as more than 20,000 direct and indirect job losses by contractors and suppliers.

In an op-ed last fall Akin warned that “Missouri will be hit hard” by across the board cuts. Citing a study by the Missouri Economic Research and Information Center, with updated data from the House Armed Services Committee, Akin asserted that Missouri “could lose almost 30,000 private sector jobs in the defense industry.”

He wrote that “an additional 4,600 jobs could be lost from cuts to active duty military personnel and Defense Department civilians in Missouri. These cuts would likely result in about $2.2 billion in lost defense contracts for Missouri businesses, and over $1 billion in lost wages for Missouri families.”

To be sure, the automatic cuts would affect far more than just the Pentagon; they could also have an impact on plenty of farmers, doctors, students and others in Missouri and Illinois.

For example, the sequestration’s $54.7 billion in non-defense cuts in 2013 alone would include some cuts in Medicare payments to providers and insurance plans (not to patients) and about $5.2 billion in cuts to other programs such as farm price supports and student loans. But several major non-discretionary programs would be exempt from sequestration, including Social Security, Medicaid, food stamps, child nutrition and veterans’ compensation.

Senate debate about ending sequestration threat

Most observers on Capitol Hill predict that the automatic cuts won’t happen, but they disagree on how long Democrats and the White House will maintain the sequestration threat – for the moment, at least – as leverage to reach a deficit and tax deal.

Even though it is clear that the House’s approach won’t fly in the Senate, Blunt said Wednesday that “we might have a vote” there. But some Democrats fear that the House’s intransigence on the issue heightens the risk that the automatic cuts will go into effect.

McCaskill thinks the threat of sequestration may help Congress arrive at a compromise on deficit reduction. “The looming sequestration keeps people at the table talking,” she said.

“Do I believe that there will be a $500 billion hit to the Defense Department? I do not. Am I willing to say right now that we should take it off the table? No, because I think we need to put everybody’s feet to the fire to get them to the table to compromise” on deficit reduction. “That’s what the American people want to do.”

Last week, Durbin and some other key senators held a closed-door meeting to try to develop a plan to solve the end-of-the-year “taxmageddon” threat – at which time, if Congress fails to act, the Bush-era tax cuts and other tax breaks would expire and sequestration would kick in.

Durbin, a key member of the bipartisan “gang” of senators who have been meeting privately to try to work out a deficit-reduction compromise, said last month that, to avoid a sequester, “we’ve got to get back to the same basic Bowles-Simpson principles” of mixing revenue increases and spending cuts. He was referring to the recommendations of the National Commission on Fiscal Responsibility and Reform in late 2010.

Among those involved in talks to avoid the end-of-year “fiscal cliff” was U.S. Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. He has floated the idea of extending some or all of the tax cuts through mid-2013, to give Congress and the administration time to reach agreement on major tax and entitlement reform.

But Baucus says the sequestration threat may be needed to reach a deal.

“Sequestration is very important and I’ve said it’s a good point of leverage to get results,” Baucus told reporters after a June 11 speech to a Bipartisan Policy Center forum. “I’m not saying how it should be resolved, but it is leverage that should not be given up easily.”

In a report this month, the Bipartisan Center said the sequestration threat already has affected some businesses and – if implemented – could cost more than a million jobs in 2013 and 2014. The report found that such automatic cuts would weaken the economy and harm national security.

Obama is holding out for a compromise under which Republicans would agree to let the Bush-era tax cuts on the wealthy to lapse, according to a New Yorker article about what to expect if he is reelected.

Some Senate Democrats worry about that approach. U.S. Sen. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee, said this week that the threat of sequester already is leading some defense companies to trim costs and prepare plans to lay off workers.

“You can't plan if you don't know whether or not there's going to be contracts coming in January or not,” Levin said at the National Press Club. “And that uncertainty, which is created by the threat, the prospect, the specter of sequestration, I believe, is a real threat to this economy."

McCaskill, who also serves on Armed Services, says she opposes across-the-board cuts but also thinks the leverage of a sequester threat can “allow, hopefully, everyone to realize that you can’t do this ‘my way or the highway’ “ – a reference to GOP opposition to any revenue increases and liberal Democrats’ reluctance to deepen spending cuts.

“If we do [compromise], we can reduce our debt by $4 trillion to $5 trillion, we can maintain the best military in the world, we can continue to invest in our infrastructure and education and research and development in this country, and we can make sure that we don’t have to blow up Medicare as we know it,” McCaskill said. “That’s all possible if people will just compromise.”

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