November 08, 2012

Sequestration Hangs Over Election Results

Despite the $6 billion spent on this year’s election, not much changed. President Obama stayed in office. The House remained in Republican control and the Democrats retained the Senate.

And one deadline remained in place. Congress has until Jan. 2 to reach a deficit reduction agreement to avoid massive sequestration cuts that spread across the entire federal government to include a 10 percent cut of the Pentagon’s budget.

With 55 days left before the deadline, very few defense or budget analysts expect Congress and the president to reach the wide ranging deal needed to lift sequestration. Most expect Congress to either delay sequestration cuts, or allow sequestration to occur and then negotiate an agreement to lessen the cuts laid out in the Budget Control Act.

Sequestration stipulates $500 billion in cuts over the next decade for the Defense Department. These would come on top of the $487 billion cut already laid out under the defense strategy proposed by the Obama administration and delayed by Congress.

Most troubling to defense leaders about sequestration is the meat axe approach in which the law mandates a 10 percent cut across defense programs. Defense Department officials do have a bit of wiggle room to move some money around the budget to protect a few high priority programs, but very little.

Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics, said Monday the Pentagon has still done very little planning to prepare for sequestration since it’s such a basic cut to planned defense spending.

For months, lawmakers have avoided questions about negotiations toward eliminating sequestration saying Congress will have to wait until the election before any progress could be expected to be made. With the election complete, Congress will have only a few weeks in a lame duck session to hash out a deal.

Mackenzie Eaglen, a defense analyst with the American Enterprise Institute, remains optimistic that Congress can make enough progress on a deficit reduction plan to achieve a partial sequester, rather than the $500 billion cut that defense coffers would have to sustain.

She pointed to the solution suggested earlier this year by Senate Armed Services Committee Chairman Sen. Carl Levin who offered a $100 billion cut over the next decade rather than the $500 billion one.

“That idea has gained traction,” she said.

Sen. Mark Warner, D-Va., said Thursday the Senate is working on a deal that includes both spending cuts and new revenue streams that already has 70 votes. However, Warner didn’t say if Speaker of the House Rep. John Boehner has seen it and supports it.

What Congress must overcome are the positions dug in by both sides of the aisle. Republicans have made it clear they will not accept a deal that applies new taxes. Conversely, Democrats have said they will not sign off on a deal that depends only on spending cuts.

Even though President Obama won re-election and earned a significant victory in the electoral college, many did not see it as a mandate that could sway Republicans at the negotiating table. Keeping the job will make it easier for the president rather than losing and having his departure hang over the lame duck session.

While there is nearly unanimous support to avoid the across the board spending cuts to the Defense Department, the Pentagon will only play a small role in these negotiations, said Nora Bensahel, a foreign policy expert and military strategist for the Center for a New American Security.

“The total dollars at stake are more than nine times larger than the defense sequestration cuts,” according to a CNAS report.

If a deal is not agreed to and the government goes over the fiscal cliff, the Bush era tax cuts expire, the Alternative Minimum Tax patch expires, and the temporary pay roll tax reduction expires. The potential disappearance of these tax cuts has gotten more attention on Capitol Hill than the reductions in defense spending.

However, Bensahel argues that the disappearance of these tax benefits could make it easier for Democrats and Republicans to negotiate a deal if the U.S. does go over the fiscal cliff. Many of the spending cuts don’t go into effect until months after the Jan. 2 deadline meaning lawmakers will have that time to potentially hash out the “grand bargain” they’ve discussed in the past.

When those tax benefits go away, taxes will automatically go up creating the revenue the Democrats have sought, but it will not be because Republicans caved. The Republicans could then negotiate the spending cuts they’ve sought while also stitching in tax cuts to the increased rate, Bensahel suggested.

In the end, Eaglen said the results of Tuesday’s presidential election probably didn’t have too much of an effect on the chances of reaching the “grand bargain” to cut down the U.S. deficit ahead of the Jan. 2 deadline.

“Either one of them would have needed time to build it and neither one would have had it in a lame duck session,” Eaglen said.