The defense industry has a single-minded purpose for the balance of the year – get Congress to avert $600 billion in cuts to the military budget that automatically trigger, by any means necessary. That would include replacing those cuts with tax increases, per Brian Beutler.
A House Armed Services Committee hearing two weeks ago first exposed the rift. Under questioning from Rep. Rob Andrews (D-NJ), two major defense contractors acknowledged that the GOP’s refusal to consider higher revenues was not conducive to solving the looming budget crisis.
“I think everything’s gotta be on the table at this point, now,” said a reluctant David Hess, President of Pratt & Whitney — a subsidiary of United Technologies. “This is a personal opinion. I’m not speaking for the employees of United Technologies, or for UTC.”
Robert Stevens, CEO of Lockheed Martin, volunteered agreement.
“I know when we face challenges in our business — and i don’t intend to imply that the challenge we face come close to the magnitude of the challenges you face on this committee or the Congress faces at large, it really makes ours look pale — we try to put into the recipe every possible ingredient that might lend itself to the formation not just of a solution but in a perfect world a flexible array of solutions — comprehensive, integrated, thorough — that allows us the flexibility to run the business,” he said.
Pro-war Senators like Lindsey Graham have been pushing this angle in particular, allowing for certain tax increases in exchange for canceling the defense sequester.
This was the thinking behind the debt limit deal, that painful automatic cuts would force the two parties to the table to hammer out a deal which, in the interest of compromise, would abandon certain sacred cows. That never happened in the Super Committee, but the military contractors, seeing the potential for their profits to drop, are screaming at Republicans to accept some tax changes.
The contours of a deal on all of this that would be most preferable to Democrats can be seen from House Minority Leader Nancy Pelosi’s recent statements. She has said that the revenue gained from letting the Bush tax cuts over $250,000 in income expire could pay for the trigger. This almost works; the tax changes would generate around $850 billion in revenue over 10 years, and the trigger saves $1.2 trillion. If you factor in the $900 billion in spending cuts already applied as part of the spending cap, that would represent a balanced deal, with slightly more cuts on the spending side as opposed to taxes (about $1.25 trillion in spending, and $850 billion in taxes), but a better ratio than virtually any deficit deal out there.
From a macroeconomic point of view, this isn’t the greatest idea. From a political point of view, it’s what Democrats have wanted for a long time, breaking the back of the Norquist pledge and getting Republicans to buckle on taxes. They think they can employ military contractors to this purpose, though the contractors are really just saying “put everything on the table” rather than imploring Republicans to raise taxes.
The flip side of this is that Republicans and substantial numbers of Democrats want a broader deal, not only one that uses the high-end tax cut expiration to pay for the trigger but which also cuts mandatory spending and the safety net. So that’s the fire you play with when you get in bed with the military industrial complex to gain a tactical victory on taxes. Rob Andrews (D-NJ) explains to Beutler:
“I do think you’re going to see a coalition of responsible people emerge — unfortunately it’s going to be in the lame duck, not prior — that’s going to support entitlement support that Democrats don’t want, revenue increases that Republicans don’t want, but deficit reduction that everybody wants, without mindless, across the board cuts in programs.”
The contractors just want to save their contracts. Nobody in particular is looking out for the rest of the country. And it’s not like the military budget ought to be spared, frankly. A few more base closures at some undefined point won’t cut it.