Sequestration Would Take Heavy Toll on Missouri Manufacturers and Suppliers
The federal government is looking for ways to avoid drastic defense department cuts that are scheduled to take effect Jan. 2, 2013 as part of the Budget Control Act of 2011.
The act calls for a sequestration process to control a rapidly growing national debt by cutting discretionary defense spending by 10 percent over the next decade, equating to $55-60 billion in 2013.
“The sequester was never intended to pass through Congress, but was used to light a fire under our congressional leaders who needed to act in order to preserve a manageable national debt,” said Ray McCarty, president of Associated Industries of Missouri. “Defense contractors and their smaller suppliers are now facing a measure that would be equivalent to General Motors and Ford going bankrupt.”
Companies like Boeing, Lockeed-Martin, Northrup Grumman, BAE Systems, General Dynamics and United Technologies stand to lose millions if the government cancels or restructures military programs or contracts.
Boeing CEO Jim McNerney has already stated that the cuts are having an adverse effect on investment and employment within defense contractors.
Others are worried about the impact on small businesses that serve as suppliers to the larger government contractors. In September, the House Small Business Committee heard from Steve Fuller, a George Mason University professor. He warned the committee that cuts under sequestration would be disproportional to small businesses. It is harder on small businesses that will not have the flexibility in adjusting business models. Unable to diversify, Fuller and others worry that the smaller businesses will downsize.
While contractors and their suppliers worry about the pending cuts, most fiscal experts and defense contractors believe that a compromise solution will be reached in the lame-duck Congress before sequestration takes full effect.
The idea of the sequester originated within the White House and was given to Senate Majority Leader Harry Reid, who then proposed the idea to congressional Republicans, said Washington Post reporter Bob Woodward.
Obama denies the claim that he proposed the idea.
“First of all, the sequester is not something that I’ve proposed,” said the president. “It is something that Congress has proposed. It will not happen.”
White House press secretary Jay Carney furthered the president’s comments to the media.
“The sequester that was designed and passed by Congress was never meant to become policy,” said Carney. “It was never meant to be implemented.”
“If our president never intended the sequester to take effect, why did he sign the bill last August,” said McCarty. “Now, the defense contractors and their manufacturer suppliers are left wondering how to alter their 2013 and 2014 business plans for the next month and a half. Instead of doing that, they should be creating jobs for the 12.3 million people out of work.”