workforce’s personal earnings will be reduced by $109.4 billion
The country stands to lose 2.1 million jobs in its defense and civilian sectors, including about 40,000 in Ohio, if Congress and the White House do not stop automatic, across-the-board spending cuts scheduled to begin in January 2013, according to a new study done for a defense contractors’ trade association.
The job and revenue losses are projected to increase the U.S. unemployment rate in 2013 by up to 1.5 percentage points, reduce the workforce’s personal earnings by $109.4 billion and cut the full-year growth of the nation’s gross domestic product total by two-thirds, according to the study led by George Mason University economist Stephen Fuller for the Aerospace Industries Association, which represents major defense and aerospace manufacturers.
The job losses would total about 1 million apiece in the defense and civilian sectors, including 21,280 defense and 19,123 civilian jobs in Ohio, Fuller and the Chmura Economics and Analytics firm projected. Their study was based on Congressional Research Service data.
The Aerospace Industries Association, which has been warning for months that the automatic budget cuts could cost 1 million jobs in the defense sector, emphasized at a Washington, D.C., news conference Tuesday that civilian employment will suffer also. The automatic cuts will affect not just the Defense Department, but also departments including Agriculture, Commerce, Education, Health and Human Services, Homeland Security, State, Transportation, Justice, Energy and Interior. Funding for the Federal Aviation Administration would also be affected, said Marion Blakey, the association’s chief executive, who is a former FAA administrator.
“It’s a genuine catastrophe, waiting to happen,” Blakey said. “Stopping it should be the very highest priority of Congress, in the days that remain.”
The automatic spending cuts, known as sequestration, will reduce defense and domestic spending by nearly $500 billion each over 10 years. The first defense cut, of $55 billion, will occur in January.
The cuts are happening because a bipartisan congressional panel didn’t devise a plan to cut the nation’s budget deficit by $1.2 trillion over 10 years. Congress authorized the automatic cuts to put pressure on itself to come up with a deficit-cutting plan. It is possible that Congress may wait until after the November election to act on whether to reverse the cuts, extend Bush-era tax cuts that will otherwise expire and once again increase the government’s borrowing authority.
New Hampshire’s two senators, Republican Kelly Ayotte and Democrat Jeanne Shaheen, both members of the Senate Armed Services Committee, appearing with Blakey at the news conference, said Congress must act as soon as possible to stop the automatic cuts. Otherwise, defense contractors that plan layoffs at year’s end could be issuing 60-day advance notices of those layoffs just prior to the November election, Ayotte said.
“We’re in this boat because they couldn’t get together,” Dale Kirby, president of the Dayton Area Defense Contractors Association, said of Congress and the White House.
Defense contracting companies that could not withstand the revenue losses from random, automatic 10 percent cuts across various federal contracts they handle could be forced out of business, Kirby said. Contractors that serve Wright-Patterson Air Force Base could be affected, including those that support 24-hour intelligence analysis missions at the base’s National Air and Space Intelligence Center, he said. Wright-Patterson has about 27,000 employees and a $5 billion economic impact annually on the Dayton region.
Members of Congress have asked the Obama administration to spell out how it would implement the automatic cuts. Defense Secretary Leon Panetta has said they would be devastating to the Pentagon, coming on top of $487 billion in cuts that the administration already plans over the next decade. Gen. Norton Schwartz, the Air Force chief of staff, said during a Fairborn appearance last week that he could not speculate on how the cuts would affect Wright-Patterson’s operations.
President Obama and other Democrats want Republicans to agree to allow tax increases for wealthy Americans, but preserve the Bush-era tax cuts for middle-class Americans, as part of stopping the automatic spending cuts and addressing the budget deficit. Republicans say Obama is ignoring the problem and is willing to make deep cuts in the military.
“Although defense accounts for just 20 percent of the budget, it will face 50 percent of sequestration cuts, severely jeopardizing our national security,” said Sen. Rob Portman, R-Ohio, a member of the Senate Armed Services Committee. “In Ohio, it will limit operations at Wright-Patterson Air Force Base and the many private firms throughout the state that support the Defense Department, and impede the immediate readiness of Ohio National Guard units.”
There are indications that tighter defense budgets are already affecting the U.S. economy. Defense spending declined by about $12 billion, or 3 percent, from October through May compared with the same period a year earlier, the Congressional Budget Office reported in late June. Weaker defense spending shaved half a percentage point off first-quarter growth of the U.S. gross domestic product, limiting the economy’s growth to 1.9 percent instead of 2.4 percent, the Commerce Department’s Bureau of Economic Analysis reported.