Aug. 2 (Bloomberg) -- Under the deficit-cutting measure Congress is considering, the Pentagon could face $825 billion in cuts over 10 years, a reduction seen as unsupportable by people familiar with Defense Department challenges.
The Pentagon initially could see at least $325 billion in curtailed spending over the decade starting in fiscal 2012 under the agreement, according to an administration official. That’s within a range that President Barack Obama already proposed over 12 years.
It’s the possible second round of budget-cutting the legislation triggers which could prove more disruptive for defense. A special congressional committee would be charged with finding another $1.5 trillion in overall deficit savings by late November balanced between defense and other spending.
If the committee took no action by November, the deal would trigger an automatic cut of an additional $500 billion from defense spending, according to a White House fact sheet.
“The problem is that it’s a mechanism that doesn’t leave a lot of wiggle room,” said Byron Callan, director for defense policy at Capital Alpha Partners LLC. “You set this thing up so that if you have this much trouble agreeing on a set of cuts” now “why should it be any easier as you get to November or December, regardless what the special committee does?”
The plan “dangles a Sword of Damocles over our national security later this year when further cuts would be triggered unless another compromise is reached,” Aerospace Industries Association President Marion Blakely said in a statement. “The cuts to defense proposed in the ‘trigger’ deal are so draconian that it’s hard to believe they are even on the table.”
The chairman of the House Armed Services Committee, Howard P. “Buck” McKeon, said he supported the compromise with “deep reservations.”
The House approved the deal 269-161 yesterday. The Senate plans a vote on the measure at noon Washington time today.
“There is no scenario in the second phase of this proposal that does not turn a debt crisis into a national security crisis,” McKeon, a California Republican, said in a statement. “Defense cannot sustain any additional cuts either from the joint committee or the sequestration trigger.”
The cuts, if carried out, could be the “beginning of the end of America as a great international power,” said Senator Joseph Lieberman, a Connecticut independent. U.S. military power “has undergirded our prosperity and so much of the prosperity in the world,” he said.
Republican Senator John McCain of Arizona said in a CNN interview yesterday, “I am worried about the size of the defense cuts that may be contemplated, but that doesn’t mean I’m rejecting the agreement.”
Callan said he didn’t see a “net change” for the defense industry since most company shares reflect a view that military spending cuts might be as high as $800 billion over 10 years.
Michael O’Hanlon, a Brookings Institution defense analyst agreed with McKeon, saying about the potential for cuts of more than $800 billion: “I can see how to do cuts half that size or two-thirds, not more.”
While there is waste and duplication in the budget, there isn’t enough slack in the system for sustained cuts over a decade, MacKenzie Eaglen, a defense analyst for the Heritage Foundation, said in an e-mail.
Not Much Give
“There just isn’t a lot of ‘give’ left right now,” she said. “This is a budget that funds all defense intelligence activities, pays three million people and is supposed to innovate and fund future capabilities.”
Still, the scale of the cuts isn’t unprecedented, said Gordon Adams, an American University professor who oversaw national security budgeting at the Office of Management and Budget under President Bill Clinton.
“We have done it before and we can do it again,” he said. The potential $825 billion “is 12 percent of the currently projected defense budgets totaling $6.7 trillion over the next decade; not an impossible task, properly managed.”
The Standard & Poor’s Supercomposite Aerospace & Defense Index fell less than 1 percent. Orbital Sciences Corp., L-3 Communications Holdings Inc., and Hungtington Ingalls Industries Inc. were among defense companies in the 29-member index whose shares fell the most. The index includes defense and commercial aerospace companies.
The agreement that congressional leaders and Obama are asking Congress to approve calls for $350 billion in “defense” cuts as part of the first installment, under a larger category that includes the Energy Department and smaller agencies allocated defense dollars. How cuts are divided among accounts is up to Congress’s budget-writers, the official said.
Months of Struggle
This is part of $420 billion in overall “security spending” cuts contained in the compromise that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion U.S. debt ceiling.
None of this takes into account the money that will be saved from planned drawdowns of troops in Iraq and Afghanistan, the official said. Critics of an attempt by Senate Majority Leader Harry Reid to count those savings in his original proposal dismissed that as a “gimmick,” while the Congressional Budget Office counted those savings in reviewing Reid’s plan.
That $420 billion in “security” spending takes the place of $400 billion in security spending cuts Obama proposed in April as a part of budgets covering 12 years, the official said.
The initial cuts would take place starting with the Pentagon’s pending fiscal 2012 request, the official said.
Base Budget Request
The House has passed its version of the 2012 authorizing and appropriations bills. The House appropriations version already cut $9 billion from the base budget request.
The Senate hasn’t voted on its respective versions, the official said, unsure what mechanism would be employed to include the additional cuts.
The additional 2012 reduction would likely take place before the Pentagon completes a comprehensive review of strategy, roles and missions intended to lay out the options and risks of meeting Obama’s $400 billion objective.
Asked to provide perspective on what a $400 billion reduction over 12 years looks like, the Pentagon comptroller said last month that it constituted about 5 percent of a roughly $7.6 trillion projection.
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