Washington — Economists warn it will push the nation over a fiscal cliff, and Connecticut’s defense industry says it will bleed jobs.
But Congress has not been able to come up with a way to avoid “sequestration,” or massive, automatic budget cuts scheduled to go into effect Jan. 2.
Those cuts would have a disproportionate effect on U.S. defense spending, slashing it by $600 billion, and defense contractors in Connecticut and across the nation are already sending out pink slips in anticipation.
During a pitched fight over the debt ceiling last year, Congress agreed to implement automatic cuts if lawmakers couldn’t agree on how to cut $1.2 trillion from the federal budget. That dismayed Connecticut’s defense industry, which is already struggling to cope with a shrinking defense budget.
Defense contractors, and lawmakers from states like Connecticut that are dependent on military spending, have begun a new push to try to avoid sequestration.
“This was a terrible idea to begin with,” said Rep. Chris Murphy, D-5th District. “There was no thought put into this.”
When Congress considered the budget deal that included the sequestration provision last year, Murphy, Rep. John Larson, D-1st District, and Rep. Rosa DeLauro voted against the deal, which was crafted to avoid a government shutdown. Reps. Joe Courtney, D-2nd District, and Jim Himes, D-4th District, voted for the plan.
Last week, David Hess, president of Pratt & Whitney, testified at a meeting of the House Armed Services Committee that his industry is already reacting to the prospect of federal money drying up.
“Companies are limiting hiring and halting investments,” he said.
Hess also said that Pratt & Whitney’s “sister division” Sikorsky Aircraft would choose to put their research and development dollars into commercial instead of defense programs if they had to make that decision now.
“The consequences (of sequestration) will be dire,” Hess said.
The National Association of Manufacturers released a study last month estimating that Connecticut would lose more than 9,000 defense industry jobs next year if sequestration takes effect and cost the nation nearly 1 million jobs of all types.
Ben Bernanke, chairman of the Federal Reserve, and Treasury Secretary Timothy Geithner have both recently warned Congress if it doesn’t avoid sequestration the nation will plunge into another recession.
But Congress faces major political hurdles in approving a budget that would avoid draconian defense cuts.
In a rare show of bipartisanship earlier this month, the House voted 414-2 to require the Obama administration to detail — within 30 days — how it would cut agencies and programs if sequestration occurs.
Congress could avoid all of that if it could agree on a budget that cuts about $109 billion from the 2013 federal budget.
But Congress is stalemated.
Democrats want to extend tax cuts to middle class Americans but allow Bush-era tax cuts to the wealthy to expire at the end of the year. That way the federal government will have some revenue to offset some of the budget reductions that must be made to avoid sequestration.
Republicans don’t want any of the Bush-era tax cuts to expire and want to protect defense spending from cuts. They want budget cuts to come from Medicaid and other social programs instead.
On Thursday, both tax plans were voted on in the Senate. The Republican plan was rejected and the Democratic one was approved. But neither one can win majority support in both chambers of Congress.
Connecticut’s Democratic lawmakers are in a tough position. They want an immediate deal, but other Democrats say waiting will give them a negotiating advantage.
“We need to come together sooner rather than later,” said Sen. Richard Blumenthal, D-Conn.
Courtney, a member of the House Armed Services Committee, said “ideally, we should do it right now.”
“The standoff is causing a ripple effect on the economy,” Courtney said.
Larson said he doesn’t think resolving the sequester issue now in any way disarms his party.
“We know what will happen with sequestration. We know what will happen in terms of layoff notices the industry has said it will send out in California, in New York, and then ultimately, across the nation,” Larson said.
A federal law called the Worker Adjustment and Retraining Notification (WARN) Act, requires private employers with more than 100 employees to send out notifications of plant closings or mass layoffs at least 60 days before the event actually takes place.
If sequestration were to occur on Jan. 2, defense contractors would have to send out pink slip in early November, days before this year’s general elections.
Some defense contractors, however, are already laying off workers.
Northrop Grumman Corp., which is closing a plant in Norwalk, Honeywell International and United Technology are among the defense companies that have cut jobs this year.
This Congress has been a master of brinksmanship. But Loren Thompson, at the Lexington Institute, a Washington-area think tank, said pressure from the defense industry and the prospects of thousands of voters receiving layoff notices just before Election Day may move a “paralyzed” Congress to action.
“Both political parties are beginning to see the electoral impact and are more motivated to head it off,” he said.