Defense industries face $100B less orders

June 13, 2012 at 4:29 PM
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WASHINGTON, June 13 (UPI) -- U.S. and international defense industries face reduced sales as the U.S. Congress considers budget cuts that may mean $100 billion shaved off defense spending in the United States over the next 10 years.

Possible defense cuts to that figure are being considered as part of the effort to reduce the budget deficit, officials said in comments cited by Web site.

Other independent comment on potential defense cutbacks was not immediately available.

U.S. Sen. Carl Levin, D-Mich., chairman of the U.S. Senate Armed Services Committee, said the Defense Department could face up to $100 billion in cuts over the next 10 years under a new deficit reduction deal.

Levin spoke at the National Press Club in Washington, saying he wouldn't want to see deeper cuts because "defense has got to contribute."

But, he added, "we've got to be very, very careful that we don't do the draconian approach on defense or on any of the other important programs like education and so forth."

Exactly how the cuts would affect defense industries' balance sheets and how they would affect jobs in the supplier industries wasn't immediately clear.

Even suggestions supported by Levin that U.S. nuclear weapons stockpile can be reduced have implications for jobs and business health of the supplier industries. Levin said the nation's nuclear stockpile was one area where Defense Department "could safely make further reductions."

U.S. Defense Department officials didn't immediately comment on Levin's statements.

Congressional support for greater defense cuts has grown as the lawmakers argue over what to cut and where. Levin is the latest legislator to join the chorus of lawmakers who want the defense sector to play some role in a larger deficit-reduction package.

Last week the Bipartisan Policy Center urged Congress to adopt a comprehensive deficit-reduction package to avoid the damaging impacts of sequestration.

Sequestration is U.S. congressional terms refers to a new fiscal policy procedure originally enshrined in the Gramm-Rudman-Hollings Deficit Reduction Act of 1985.

It is generally seen as an effort to reform congressional voting procedures so as to make the size of the federal government's budget deficit a matter of conscious choice rather than simply the arithmetical outcome of a decentralized appropriations process.

Critics say a decentralized appropriations process can lead to a situation where no one really looks at cumulative results until it is too late to change anything.

If a number of appropriation bills passed separately by Congress provide for total government spending in excess of the limits Congress already has laid in the annual Budget Resolution, and if Congress cannot agree on ways to cut back the total or does not pass a new, higher Budget Resolution, then an "automatic" form of spending cutback called "sequestration" comes into play.

Under sequestration, an amount of money equal to the difference between the cap set in the Budget Resolution and the amount actually appropriated is "sequestered" by the Treasury and not handed over to the agencies to which it was originally appropriated.

Critics say sequestration is the worst way to bring down a budget deficit.

U.S. aviation, defense and security industries have already borne the brunt of a $487 billion reduction in spending the Pentagon is having to apply over the next decade.

Supporters of the cutbacks say the stipulated $100 billion reduction is still far less than a $500 billion reduction that could be enforced under sequestration.

However, support still exists for the Defense Department to take part proactively in reduction package programs.

Levin indicated the senators were aiming to work "in a way that is rational and in a way that involves compromise on the part of everybody."

For example, if Republicans want to avoid sequestration hitting the Defense Department they have to be willing to compromise on taxes, Levin said.

Levin said he believes Congress will find a way out of sequestration because an overwhelming majority on Capitol Hill wanted to avoid it. He said that Congress remained flexible on the way forward.

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