Mulling what it will take for Congress to avoid sequester
In a moment of desperation, U.S. Defense Secretary Leon Panetta told reporters he is ready to support “whatever the hell deal” Congress can make to avoid a near-$1 trillion reduction in government spending, half of which could hit the in January. But after more than a year of warnings about the devastation the budget penalty known as sequestration could wreak on the U.S. economy, it is still uncertain whether the results of the election will allow for a delay to pass through Congress in the lame-duck session.
It does make something of a difference. “The election clears out the excuses of why you can't deal with sequestration,” says David Berteau, director of the Center for Strategic and International Studies' International Security program.
But the election does not necessarily provide an incentive for Congress to act, either. If Mitt Romney wins or if the balance of power in Congress shifts, either party may want to wait for its team to assemble next year.
Democratic lawmakers contend they have a punt formation that reduces the deficit in fiscal 2013 and outlines a framework for a sure-fire deal next year. If President Obama is reelected, such a deal is more likely to pass than if Republicans win and want to wait for Romney to provide direction.
Sen. Patty Murray (D-Wash.) drew criticism for a speech she made at the Brookings Institution in July when she said plainly that allowing the Bush-era tax cuts to expire could help Washington move closer to a big deal on deficit reduction.
Allowing the tax cuts to expire will enable the party that grabs power in November to reduce rather than increase taxes as part of grand-bargain deficit-reduction talks next year.
Sequestration has provided plenty of election-year campaign fodder. Republican nominee Romney was in Virginia recently and blamed Obama for the “gun-to-your-head” approach to budget cutting. On the same day, again in military-rich Virginia, Obama hammered Romney's approach to economic growth. Senators John McCain (R-Ariz.), Lindsey Graham (R-S.C.) and Kelly Ayotte (R-N.H.) have toured military bases around the country warning about the devastation the budget penalty will cause to the nation's security. They have keyed on the potential for defense companies to begin warning their employees of possible layoffs due to sequestration.
In the absence of details, industry has been forced to make its own predictions, with some companies attributing job losses to uncertainty andpredicting a 5% decline in government business due to sequestration. But a Sept. 28 Office of Management and Budget directive lets contractors off the hook for not notifying workers of layoffs before the first of the year. , poised to issue notices under the Worker Adjustment and Retraining Notification Act, now will stay quiet until sequestration takes effect.
The Aerospace Industries Association has predicted a drop-off of one million defense-industry jobs. But the industry has been girding for losses for years already. Since the Budget Control Act was passed in August 2011,has laid off 1,500 defense employees and shifted 1,100 to its commercial side. Spokesman Dan Beck notes that those are not attributable to sequestration, but rather to a broader set of reasons.
Senate Armed Services Committee Chairman Carl Levin (D-Mich.), along with McCain, Graham, Ayotte and others are clamoring for a deal to delay sequester in the lame-duck session. But the big question is whether or not the election changes anything at all. Such a deal could include a sequester-equivalent deficit reduction and defense budget cuts along with that.
But if sequestration actually takes effect, lawmakers might be able to secure a delay or grand bargain before sequestration causes wide devastation, says Berteau.
When the Office of Management and Budget (OMB) issues the document that puts sequestration into action, it will ask agencies to submit plans for how they will implement the penalty. And OMB will want to review those plans before issuing furlough notices, which are sent out 60 days before taking effect, he says. “This means Congress will have some time to work, particularly if the tax cuts have also expired,” Berteau adds. While the election does not necessarily determine the outcome of an eventual deal, it plays a role. But for that scenario to benefit industry, Congress will have to find a new way to address the penalty.
Todd Harrison, a defense budget analyst at the Center for Strategic and Budgetary Assessments says that the longer organizations wait to figure out how they implement sequester-based cuts, the worse their impacts will be on the rest of the year.
If the election can't force Washington to act, Wall Street may nudge Congress over the edge, analysts contend. One of the drivers of the Budget Control Act that led to sequestration was the fight in Congress over whether to raise the debt ceiling, and the uncertainty that caused credit-rating agencies to consider downgrading the U.S.
“There may be very powerful market mechanisms that would push Congress to do something about this,” says Nora Bensahel, a senior fellow at the Center for New American Security.