WASHINGTON — Republicans and Democrats seized on a new report estimating that automatic budget cuts will cost the economy 2 million jobs to level election-year charges that underscored the deep political divide over how to avert the looming crisis.
Roughly five months until the across-the-board reductions kick in, the Aerospace Industries Association unveiled a new report Tuesday that warned of jobs losses, billions in losses to the economy and a blow to wages from the $1.2 trillion, 10-year cuts in defense and domestic programs. The trade group that represents manufacturers, New Hampshire's two senators and the mayors of Phoenix and San Diego cited the report in arguing that it was imperative that Congress act before the November election to avoid the cuts.
But the chasm between the two parties remains. President Barack Obama and Democrats want tax increases on high wage earners to be part of any alternative to the cuts, known in Washington as sequestration. Republicans reject that idea, contending that it would be reckless to raise taxes as the economy struggles to recover and arguing that the president is shirking his duty as commander in chief.
"Ignoring the reality of the sequester, on top of the demands by the president and his party to hike taxes, will result in fewer jobs, higher taxes on small businesses and working families, and compromise the ability of the United States to defend itself at home and abroad. This sort of so-called leadership is unacceptable," said a statement from the office of House Majority Leader Eric Cantor, R-Va.
The report by Dr. Stephen Fuller of George Mason University and Chmura Economics and Analytics estimated that the cuts would reduce the nation's gross domestic product by $215 billion next year while consumer confidence would plummet. The analysis is similar to other cautionary reports that have emerged in recent months from independent organizations that analyze federal spending. All the reports carry a degree of uncertainty since the government hasn't spelled out where it would make the cuts.
Marion Blakey, president and chief executive officer of the Aerospace Industries Association, told a news conference that the cuts would result in an employment "Armageddon" and stands as a "genuine catastrophe waiting to happen," with the potential of 175,000 jobs losses per month next year.
Not far from where she spoke, a countdown clock marked the days, hours and minutes to the automatic cuts on Jan. 2 – 168 days.
Republican Kelly Ayotte and Democrat Jeanne Shaheen, both members of the Senate Armed Services Committee, agreed that it was imperative that Congress move swiftly before the November election to avert the cuts, but they offered variations on a solution.
Ayotte favored a one-year, stop-gap effort to come up with $109 billion in cuts, giving lawmakers more time to produce a long-term solution that involves closing tax loopholes. Shaheen said a far-reaching solution is needed now that deals with all issues, including spending, entitlement programs and taxes, although she signaled a willingness to consider a short-term plan.
"We do need to do a large agreement that deals fundamentally with the drivers of our debt, which would include a tax reform model that would simplify and lower rates with looking at deficit reduction, entitlement reform, all of it together," Ayotte said. "But I don't see that happening realistically before the election."
Shaheen said, "You can't get there unless revenue is on the table. ... You got to put aside these sacred cows or you're not going to get a deal."
The report comes amid a cacophony of election-year demands and partisan backbiting over how to avert the impending cuts that will only grow louder in the coming weeks.
Dick Cheney, former vice president and onetime defense secretary, told Senate Republicans that the automatic cuts were a blunt instrument that would be devastating to technology development and readiness, undercutting the ability of the military to tackle unexpected threats. At the GOP's weekly closed-door luncheon, Cheney spoke at length about the damage from sequestration, according to Republican senators.
"He probably talked more today than he did in eight years," said Sen. Lindsey Graham, R-S.C., who welcomed Cheney's comments as a boost to his effort, along with a handful of other Senate Democrats and Republican, to come up with an alternative to the cuts.
Graham said a possible option is a one-year fix that would include spending cuts and about $30 billion in fee increases, assets sales and closing tax loopholes to generate revenue.
The House is scheduled to vote this week on legislation forcing the Obama administration to explain how it will impose the automatic cuts. Top officials from major defense contractors such as Lockheed Martin, EADS, Pratt and Whitney and Williams-Pyro are slated to testify before the House Armed Services Committee on Wednesday as they clamor for Congress to avoid the cuts.
Then, on Aug. 1, Jeffrey Zients, acting head of the Office of Management and Budget, and Deputy Defense Secretary Ashton Carter will be questioned by the panel on how the administration plans to make $55 billion in defense cuts next year.
Unless Obama and congressional Republicans and Democrats can agree on a plan to stave off the cuts, the military will face a reduction of $492 billion over a decade, with a $55 billion cut beginning in January, three months into the fiscal year. Domestic programs also would be reduced by $492 billion over 10 years.
The automatic cuts are the result of the failure last year of a bipartisan congressional panel to come up with a plan to cut the deficit by $1.2 trillion over 10 years. The panel had been created in the hard-fought budget law passed last summer that reduced government spending while raising the nation's borrowing authority. Decisions on across-the-board reductions, the expiration of Bush-era tax cuts and another effort to increase the country's borrowing authority are part of a packed congressional agenda after the November elections.
Using the issue as leverage, Democrats have signaled they are willing to allow the automatic cuts if Republicans continue to rebuff calls to raise taxes on those Americans making more than $250,000 a year.
Based on analyses by the Congressional Research Service and other data, the report estimated that the automatic cuts would translate into a 1.5 percentage point increase in unemployment, which now stands at 8.2 percent in a sluggish economic recovery.
The report estimated a loss of 1.09 million jobs from the defense cuts next year, with almost 70 percent from manufacturing and professional and business service jobs. Cuts in domestic spending would result in 1.05 million jobs lost, the report estimated.
"The federal agencies haven't said what they would cut back," Fuller said in an interview on the domestic cuts. "They don't have too many choices because most of their budget is payroll, where the Defense Department has more choices because most of its budget isn't payroll."