Report: 2 Million Jobs Will Be Lost If Automatic Spending Cuts Kick In

Laid off workers

WASHINGTON -- Automatic cuts in federal spending will cost the economy more than 2 million jobs, from defense contracting to border security to education, if Congress fails to resolve the looming budget crisis, according to an analysis released Tuesday.

The study, obtained by The Associated Press, was conducted for the Aerospace Industries Association, but it examined the shared pain for defense and domestic programs from the across-the-board reductions slated to kick in Jan. 2. The cuts would reduce the nation's gross domestic product by $215 billion next year while consumer confidence would plummet, said the report by Dr. Stephen Fuller of George Mason University and Chmura Economics and Analytics.

"If they are allowed to occur as currently scheduled, the long-term consequences will permanently alter the course of the U.S. economy's performance, changing its competitive position in the global economy," said the report.

The analysis is similar to other cautionary reports that have emerged in recent months from independent organizations that analyze federal spending and the process known in Washington as sequestration. All the reports carry a degree of uncertainty as the government hasn't spelled out where it would make the cuts.

The Aerospace Industries Association is a trade group that represents manufacturers of military and business aircraft, space systems and other technology. At stake for these companies are billions of dollars of contracts and they are campaigning hard against the spending cuts.

Its 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.

Republicans are certain to seize on the dire numbers as they insist that President Barack Obama is ignoring a critical problem and is willing to make deep cuts in the military. Democrats will use the estimates to demand that the GOP accept tax increases on high wage earners as part of any alternative to implementing the cuts.

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, known as sequestration, 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% in a sluggish economic recovery.

The report estimated a loss of 1.09 million jobs from the defense cuts next year, with almost 70% 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 of 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."

Republicans and Democrats remain deeply divided over how to stave off the cuts, though various groups of senators have been trying to come up with a resolution.

Sen. John McCain, the top Republican on the Senate Armed Services Committee, has been talking privately with the panel's chairman, Democrat Carl Levin of Michigan, Sen. John Kerry, D-Mass., Lindsey Graham, R-S.C., and other lawmakers about various options to avert the cuts, including a $110 billion, one-year plan that would include closing tax loopholes.

He faces a tough challenge in securing strong bipartisan support, a reality underscored by House Speaker John Boehner's contention that closing tax loopholes should be part of a deal for tax reform rather than a way to avert the defense cuts.

Marion Blakey, president and chief executive officer of the Aerospace Industries Association, said the industry did not want to offer an opinion on what solution would be best.

"We would expect that in this situation, rational behavior will take hold," she said in an interview. She said it was imperative because the cuts only provide a short-term benefit.

"This isn't addressing the fundamentals in any way," she said. "What it's doing is driving our economy back into a recession for an anticipated short-term nick on the debt. That's all it is."

Increase your money and finance knowledge from home

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

The Aerospace Industries Association is a trade group that represents manufacturers of military and business aircraft, space systems and other technology. At stake for these companies are billions of dollars of contracts and they are campaigning hard against the spending cuts. ............And they funded a study which says exactly what they wanted it to say. PLEASE...... next

July 27 2012 at 6:39 PM Report abuse rate up rate down Reply

News flash: Reuters reports jobless claims up 35000. Time to spin huffy puffy.

July 19 2012 at 9:18 AM Report abuse +1 rate up rate down Reply

The entitlements are the problem: rent assistance, food stamps, welfare fraud abounds, solar energy give aways
Unwed mothers, Government Motors, Michelle's credit card, educational failures, favored union buying, helping GE move overseas, etc.

July 19 2012 at 8:49 AM Report abuse +1 rate up rate down Reply

The Budget have been passed 3 times by the Republicans, but even they won't make the effort to put the 1 billion back into the Medicare Fund. They stlll are playing the game with the Democrats from the Rule committee to the floor. They should just do the reverse and let the public know the reality of the debt and force the Federal Reserve to do Town Cryer report once a week to let the see the debt and the actual payment by them to get their junk money out of th system, and make all that borrowed money from the UAW to the banks and to Acorn given money to actual start a bank. Which also includes the Unions up Northa and Western States. They should all be required to a ballon payment from their taking taxpayers money. That should put funds into the people's account. That should also put the federal reserve and the Senate and the Congress to start to get their IOUs' out of Social Security and Medicare. To make a bigger payment down on out debt and start to buy back the debt.

July 18 2012 at 3:47 PM Report abuse rate up rate down Reply

1. The USA needs to stop being the policeman of the planet and an occupier of countries that hate us and just take our money.
2. Cut off foreign aid to our enemies, for instance.... Pakistan.
3. Cut out excessive government bureaucracies and duplication of functions within Gov't. You could probably balance half the budget right here.
4.Eliminate all useless projects and OBVIOUS "pork barrel" spending (e.g. Bridges to nowhere and no longer needed military hardware purchases).
5. Impose tight monetary limits on lobbyists and special interest groups...they've taken over our government and the economy... especially the "banksters," oil lobbyists and Wall Street "wise guys."
6. Revise the tax code and plug all the loop holes used by "wise guys," special interests (e.g. big oil) and other thieves. Better yet,...get rid of the complex tax and impose a flat tax or value added tax (VAT) where everyone pays a reasonable share except for perhaps the most indigent and poor. Any US company or individual using a tax haven is either laundering or hiding illegally gotten money. IF they are found out, these manipulators and “wise guys” should go to prison.
7. Crack down on legalized financial fraud and black hole smoke and mirror economics on Wall Street. Put in prison, those unconscionable, greedy, bastards and "wise guys" along with their political cronies who caused the housing mess which necessitated the almost $1 trillion in bail-out money footed by the taxpayers. Make the companies who got the bail out pay it back with interest to the taxpayers.
8. Hire more auditors to weed out welfare, medicare and medicaid fraud.
9. People are going to have to work longer for Social Security and the income and salary base will have to be raised.
10. Medicare is going to have to be on more of a sliding scale. Those who can afford to pay more will likely have to do so and pay higher deductibles.
11. Enforce immigration laws.
12. Institute tort reform
13. Enough of political finger pointing...there is plenty of blame on both sides of the political aisle with our irresponsible Gov't and what is wrong with our country. Neither party has done a great job.
14. Bring back "Common Sense" and throw out "Political Correctness."
15. Establish term limits for both houses of congress.
16. Separate God and religion from politics.
Anyone care to add anything useful?

July 18 2012 at 12:36 PM Report abuse +4 rate up rate down Reply
1 reply to Artie's comment

Just outsource the defense contracts to China like Washington has with the rest of the manufacturing in this country. That will take care of it, think of all the $$$$ saved.

July 18 2012 at 1:54 PM Report abuse +1 rate up rate down Reply

Ok.....lets see whats on the other side of the cliff

July 18 2012 at 11:06 AM Report abuse rate up rate down Reply

The Politicans Have Stolen & Spent our Social Security Fund, Medicare Money! Both Parties, Worked With Big Businesses To Send American Jobs Off Shore - CHINA - (NAFTA) ! Where Did These Highly Educated, Ivy League, Professorial Types Think, Their TAX Base Would Come From? Neither Party Does Anything For The American Middle Class. They Have DUMBED _ DOWN - Our Education - System! There Needs To Be A Middle Class Party To Work For The American People As Neither The Democrat Or Republican Partie Do Anything For The Middle Class. They Have Plenty Of Money For Countries & People Who HATE Us HOWEVER IF You Are An American Citizen, Forget About It - !!!!!

July 18 2012 at 9:57 AM Report abuse +5 rate up rate down Reply

Why do 50% of our citizens pay no income tax?If we need more money lets try a federal sales tax. That way everybody pays rich and poor alike. That all citizens have skin in the game.

July 18 2012 at 8:30 AM Report abuse +5 rate up rate down Reply

Where are the shovel ready jobs that our fine president spent 800 billion on. There is none. Where did the money go?????

July 18 2012 at 8:26 AM Report abuse +1 rate up rate down Reply

Scare tatics!!!! What happened to 1.84 a gallon gas?????? 1.84 per gallon for gas was the national avg. on Jan 20,2009.

July 18 2012 at 8:24 AM Report abuse +3 rate up rate down Reply