If sequestration happens, it will be a blunt-force trauma to industry and to America. —Lockheed Martin CEO Robert Stevens
Sequestration may end up being a negative November surprise for President Barack Obama, and the across-the-board spending cuts are sparking debates and warnings in Congress as lawmakers look for a solution.
"We are known for a lot of dumb things up here," Sen. Lindsey Graham, R-S.C., said on July 17. "But this sequestration concept was really the dumbest."
Sequestration developed as part of the Budget Control Act of 2011, which raised the federal debt ceiling and promised to cut budget deficits by at least $2.1 trillion from 2012 to 2021. If the cuts weren't enacted, sequestration would automatically kick in.
The theory, a Washington Post article said, was that sequestration could convince Republicans and Democrats to negotiate a more acceptable package of cuts by putting defense and domestic budgets on the table. When the budget supercommittee didn't vote, the plan fell through.
The $500 billion in military cuts in the next decade coming from sequestration are in addition to $487 billion in defense reductions included in the Budget Control Act and previous cuts made by former defense secretary Robert Gates.
While the defense industry and military leaders fear the impact of sequestration on national defense, nobody may have a more vested interest in a sequestration arrangement than President Obama.
An economic impact analysis suggested that sequestration could cost as many as 2.14 million jobs. Under the provisions of the Warn Act, also known as the Worker Adjustment and Retraining Notification Act, an employer must give noticed about mass layoffs 60 days before the cuts would kick in. Warn Act notices of layoffs would show up at the beginning of November. The election is on November 7.
In a Senate speech on July 17, Sen. Jim Inhofe, R-Okla., accused the Obama administration of leaning on the industry to delay sending those pink slips for political reasons.
"It's my opinion that the president, and I've heard this from several of the defense contractors, saying that the administration is leaning on them not to send pink slips out firing these people as a result of the Obama sequestration until after the November 7 election," Inhofe said. "The law says they must do it by 60 days, but they can do it by tomorrow if they want to, and I think that the people of this country who are going to lose their jobs due to the Obama sequestration should be entitled to know that they are going to get their pink slips before the election."
"I see this is a sleeper issue in the presidential race," Sen. Kelly Ayoutte, R-N.H., told The Washington Examiner. "I would think that our president, the commander-in-chief, would not have an interest in having all these Warn Act notices coming out before the election."
A recent report warned that the sequestration cuts could push unemployment back above 9 percent and reduce projected growth in 2013 by two-thirds as millions of workers lose their jobs. Estimates for job loss include 48,059 health care jobs 98,953 construction jobs, 473,250 manufacturing jobs and 617,449 federal jobs.
Estimates for Department of Defense job losses in Utah total 8,294, while non-Department of Defense job losses total 7,739. The largest cuts are expected to hit California, which may see a total of 225,464 jobs lost. Delaware may also see losses of more than 200,000, while Texas, Maryland and Washington D.C., would see losses of more than 100,000.
However, Ben Freeman, an analyst at the Project On Government Oversight, told U.S. News that industry officials are playing politics in order to get money.
"Despite the doomsday rhetoric and contractor funded 'studies' reporting grossly overinflated job losses they claim would result if the Pentagon's more than half-a-trillion dollar budget is cut, there is absolutely no reason these companies would need to have massive layoffs," Freeman said.
On July 18, lawmakers passed a bill giving the White House 30 days to explain how it will deal with the spending cuts. The vote totaled 414-2.
In a July 17 hearing on sequestration implementation, the House Armed Services Committee focused on the spending cuts with testimony by Lockheed Martin CEO Robert Stevens, Pratt & Whitney president David Hess, EADS North America CEO Sean O'Keefe and Williams-Pyro president Della Williams.
At the hearing, the business leaders emphasized the impact on their industry, while Democrats pushed for an acknowledgment that revenue increases should be included in any possible sequestration deal.
"It's become an article of almost religious faith around here for some members that any revenue increase at any time on anyone should be taken off the table. Who here agrees with that proposition?" Rep. Rob Andrews, D-N.J., asked. "Do you or do you not think it is wise for Congress to rule out all revenue on all people at all times forever? Do you think that's a wise course?"
"I don't think you'll hear any of us here today arguing against fiscal responsibility," Hess said. When he was pressed further, he added, "I think that everything's got to be on the table right now at this point. This is a personal opinion."
Stevens said that in business, every possible ingredient that might lend itself to a formation of a flexible array of solutions should be included in a recipe.
Rep. Susan Davis, D-Calif., said that she hoped she could count on industry leaders to join the Democrats in calling for higher taxes as part of a sequestration deal.
Rep. Randy Forbes, R-Va., hit back, showing graphs comparing the president's stimulus spending with the defense cuts, saying that the one year of stimulus spending in 2009 equaled almost the entire amount now being taken out of defense for 10 years. That stimulus spending, he said, had no significant increase on jobs, while the defense cuts will tangibly hurt jobs.
The majority of the hearing focused on those tangible effects, with industry leaders saying the cuts will impact their own workforces, but also the workforces of suppliers and others. It is already impacting how the companies seek new workers and is hurting their recruiting on college campuses, they said.
"If sequestration happens, it will be a blunt-force trauma to industry and to America," Stevens said.