Clock already ticking on automatic cuts

Associated Press

WASHINGTON (AP) – Roughly five months until across-the-board budget reductions, known as sequestration, are set to kick in, the Aerospace Industries Association unveiled a new report Tuesday that warned of jobs losses, billions in losses to the economy and a blow to wages from the $1.2 trillion, 10-year cuts in defense and domestic programs.

The trade group that represents manufacturers, New Hampshire’s two senators and the mayors of Phoenix and San Diego cited the report in arguing that it was imperative that Congress act before the November election to avoid the cuts.

The report by Dr. Stephen Fuller of George Mason University and Chmura Economics and Analytics estimated that the cuts would reduce the nation’s gross domestic product by $215 billion next year while consumer confidence would plummet. The analysis is similar to other cautionary reports that have emerged in recent months from independent organizations that analyze federal spending. All the reports carry a degree of uncertainty since the government hasn’t spelled out where it would make the cuts.

Marion Blakey, president and chief executive officer of the Aerospace Industries Association, told a news conference that the cuts would result in an employment "Armageddon" and stands as a "genuine catastrophe waiting to happen," with the potential of 175,000 jobs losses per month next year.

Not far from where she spoke, a countdown clock marked the days, hours and minutes to the automatic cuts on Jan. 2 — 168 days.

Flurry of activity to avert cuts

The report comes amid a cacophony of election-year demands and partisan backbiting over how to avert the impending cuts that will only grow louder in the coming weeks.

Former Vice President and onetime Defense Secretary Dick Cheney was meeting with Senate and House Republicans Tuesday to discuss the cuts. The House is scheduled to vote this week on legislation forcing the Obama administration to explain how it will impose the automatic cuts. Top officials from major defense contractors such as Lockheed Martin, EADS, Pratt and Whitney and Williams-Pyro are slated to testify before the House Armed Services Committee on Wednesday as they clamor for Congress to avoid the cuts.

Then, on Aug. 1, Jeffrey Zients, acting head of the Office of Management and Budget, and Deputy Defense Secretary Ashton Carter will be questioned by the panel on how the administration plans to make $55 billion in defense cuts next year.

Unless Obama and congressional Republicans and Democrats can agree on a plan to stave off the cuts, the military will face a reduction of $492 billion over a decade, with a $55 billion cut beginning in January, three months into the fiscal year. Domestic programs also would be reduced by $492 billion over 10 years.

Agencies left without many options

The automatic cuts are the result of the failure last year of a bipartisan congressional panel to come up with a plan to cut the deficit by $1.2 trillion over 10 years. The panel had been created in the hard-fought budget law passed last summer that reduced government spending while raising the nation’s borrowing authority. Decisions on across-the-board reductions, the expiration of Bush-era tax cuts and another effort to increase the country’s borrowing authority are part of a packed congressional agenda after the November elections.

Based on analyses by the Congressional Research Service and other data, the report estimated that the automatic cuts would translate into a 1.5 percentage point increase in unemployment, which now stands at 8.2 percent in a sluggish economic recovery.

The report estimated a loss of 1.09 million jobs from the defense cuts next year, with almost 70 percent from manufacturing and professional and business service jobs. Cuts in domestic spending would result in 1.05 million jobs lost, the report estimated.

"The federal agencies haven’t said what they would cut back," Fuller said in an interview on the domestic cuts. "They don’t have too many choices because most of their budget is payroll, where the Defense Department has more choices because most of its budget isn’t payroll."

Lawmakers disagree on solutions

Republican Sens. Kelly Ayotte and Jeanne Shaheen, both members of the Armed Services Committee, agreed that it was imperative that Congress move swiftly before the November election to avert the cuts, but they offered variations on a solution.

Ayotte favored a one-year, stop-gap effort to come up with $109 billion in cuts, giving lawmakers more time to produce a long-term solution that involves closing tax loopholes. Shaheen said a far-reaching solution is needed now that deals with all issues, including spending, entitlement programs and taxes, although she signaled a willingness to consider a short-term plan.

"We do need to do a large agreement that deals fundamentally with the drivers of our debt, which would include a tax reform model that would simplify and lower rates with looking at deficit reduction, entitlement reform, all of it together," Ayotte said. "But I don’t see that happening realistically before the election." Shaheen said, "You can’t get there unless revenue is on the table. … You got to put aside these sacred cows or you’re not going to get a deal."

(Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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