The divided U.S. government edged closer to the so-called “fiscal cliff,” a combination of tax increases and automatic spending cuts that will be imposed on January 2 unless political parties reach agreement on a package to reduce the country’s $16 trillion national debt. With 25 days remaining before the measures take effect, the parties were at a stalemate.
The Department of Defense (DOD) already faces $487 billion in spending reductions over the next decade as required by the 2011 Budget Control Act. That legislation also triggered automatic spending cuts, known as “sequestration,” of $1.2 trillion across civil and defense agencies, after Congress failed to lessen the national debt by a comparable amount. The Pentagon’s share of sequestration cuts would be $500 billion over a decade, including a $55 billion reduction in Fiscal Year 2013. Senior defense officials have warned of disastrous consequences for national security if sequestration happens. On December 5, the DOD said it has been instructed by the White House Office of Management and Budget to begin planning for that eventuality.
Four aerospace industry chief executives assembled by the Aerospace Industries Association (AIA) called on Congress and President Obama to resolve the fiscal cliff standoff and avert sequestration cuts during a Washington, D.C., press conference on December 3. The executives said they support a resolution that balances the main demands of the political parties: Republicans insist that federal entitlement programs including Medicare and Social Security be trimmed; Democrats demand that wealthier Americans pay higher tax rates.
“Our view is [the resolution] has to be a balanced set of actions. We have to have all of the variables on the table, and it has to be pragmatic,” said Northrop Grumman CEO Wes Bush. “If we fail to come together as a country, the signal that sends about the capability of the United States of America to get its own house in order is very negative.”
The AIA has commissioned a series of economic impact studies on sequestration; a report issued in July estimated that automatic cuts affecting civil and defense agencies would cause 2.14 million job losses in 2013. “Whether a solution is found or not, we’ll have to ask what message did sequestration telegraph to the world about our country?” AIA president and CEO Marion Blakey asked during the association’s year-end luncheon on December 5. “The fact that the world’s arsenal of democracy has been relegated to the status of a political bargaining chip is difficult to fathom.”