2 Million jobs lost if federal budget cuts kick in Jan. 2

WASHINGTON (AP) — 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 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 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.”