The Pentagon’s new fiscal cliff | POLITICO

“Everyone is still with the happy talk that somehow sequestration is going to go away.”


President Barack Obama and congressional Republicans say they want to boost Pentagon spending by tens of billions of dollars next year — but that’s just budget theater.

The administration and the new Republican-controlled Congress are creating another budgetary cliff on defense spending, forcing the military to face across-the-board cuts if Pentagon spending busts the caps that are already law.

The sequestration cap for Pentagon spending is about $499 billion, but the Obama administration is set to propose a $534 billion base defense budget, according to budget documents. And many analysts expect congressional Republicans propose a similar, if not higher, topline.

If the the final Pentagon spending measure exceeds the budget cap without changing the sequestration law, the Pentagon would get hit with across-the-board cuts back down to $499 billion.

Leaders of the Armed Services committees continually preach about the devastation of the cuts — summoning military leaders to Capitol Hill to detail how the cuts would wreak havoc — but so far there’s little talk of another budget resolution like the Ryan-Murray deal in December 2013, which provided some sequestration relief, let alone a “grand bargain” involving taxes and entitlements to stave off sequestration once and for all.

“Everyone is still with the happy talk that somehow sequestration is going to go away and they’re somehow going to have a higher number,” Rep. Adam Smith of Washington state, the top Democrat on the House Armed Services Committee, told POLITICO.

Across the Capitol, many, if not most, Democrats and Republicans alike oppose defense sequestration, set up by the 2011 Budget Control Act that raised the debt ceiling. But defense spending has been tied up for years over the larger budget debate about taxes and entitlements that has stymied Congress and President Barack Obama from striking a major budget agreement.

That disconnect is likely to play out once again in this year’s budget proposals. The administration’s budget, to be released Monday, is likely to boost both defense and domestic spending — expected to be paid for in part with tax increases unacceptable to Republicans.

Past Republican budgets have also proposed a higher defense spending topline, but they’ve done so through cuts to domestic agencies and entitlement reforms that are non-starters with Democrats.

Defense hawks, however, say there’s still plenty of time to gin up support for a budget deal that can give the military — and possibly domestic agencies — relief from the budget crunch.

“Endgame? We aren’t even at kickoff yet,” one House GOP aide said when asked about a sequestration fix.

Armed Services members argue that the dynamic in Washington has shifted with the new U.S. war against the Islamic State in Syria and Iraq and the military’s fight against Ebola in Africa, which can convince wayward lawmakers the defense shortfall must be addressed.

And they say that the effects of sequestration will hit the military much harder than it did initially in 2013 because the services have already cut to the bone to grapple with reductions after the end of the war in Iraq and the drawdown in Afghanistan.

Senate Armed Services Chairman John McCain (R-Ariz.), who has made repealing sequestration his top committee priority this year, is trying to force his colleagues to listen to the military’s dire warnings. He held a hearing Wednesday with the service chiefs so they could lay out the damage the cuts would cause, from losing capabilities for intelligence-gathering drone flights to more casualties due to a hollow and untrained military force.

“I will say candidly that it is deeply frustrating that a hearing of this kind is still necessary,” McCain said. “And yet, here we go again: If we in Congress do not act, sequestration will return in full in fiscal year 2016, setting our military on a far more dangerous course.”

In past years, the budget battles have pit the Republican House against the Democratic Senate and Obama. This year, though, GOP defense hawks will be squaring off primarily with deficit hawks in their own party.

The Budget Committee chairmen will play a key role, and defense analysts say they don’t know yet how the new chairmen, Rep. Tom Price (R-Ga.) and Sen. Mike Enzi (R-Wyo.), will tackle defense spending amid a desire to cut the deficit. Both chairmen held hearings on the budget outlook this week, where they talked plenty about balancing the budget and curbing spending. But neither mentioned defense spending or sequestration in his opening statements.

Congressional leaders have also said little about sequestration in outlining their priorities for the new Congress.

“Right now, the signals are not encouraging, and by that I mean lack of signals by Speaker [John] Boehner, Majority Leader [Mitch] McConnell, and chairs and ranking members of the Budget Committees in both chambers,” said Mackenzie Eaglen, a defense analyst at the American Enterprise Institute. “Only when it becomes a crisis, when we are confronting sole sequestration close to the deadline, will there be real movement — if there is movement on a budget deal.”

Asked whether his budget would put Pentagon spending above the sequester cap, Enzi declined to say. “I’m a long way from starting to comment on every item in the budget,” he said.

Sen. Tim Kaine of Virginia, who has been a vocal Democrat on averting sequestration, said that some informal discussions are underway among members of the Budget and Armed Services committees. And he noted he was one of a half-dozen senators on both committees.

House Armed Services Committee Chairman Mac Thornberry (R-Texas) and other defense hawks say their role is to highlight the dangers of not stopping sequestration, rather than proposing an ultimate solution that involves taxes, spending and entitlements.

But there have been some signs that GOP defense hawks may be more willing to compromise with the president on a budget deal. Thornberry, for instance, did not rule out tax increases as part of a sequestration solution, something his predecessor did not support.

“I’m pretty much open to any solution that would fix sequestration,” Thornberry said in an interview.

And Sen. Lindsey Graham (R-S.C.), McCain’s right-hand man on defense issues, has said repeatedly he’s willing to support new revenues in exchange for entitlement reforms, as well as pursuing a fix addressing both defense and domestic spending.

At Wednesday’s hearing, Graham slammed Obama and Congress, criticizing both sides for creating sequestration and not doing anything about it.

“We don’t have a plan,” Graham said. “But Sen. McCain, to his credit, is challenging some of us on the committee to find a plan. Mr. President, help us, because we can’t do this by ourselves.”

The 2013 budget agreement between the then-Budget Committee chairs, Sen. Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wis.) proved there can be some appetite for a budget deal, but that agreement only reversed a small chunk of sequestration — and it used up many of the “easy” spending cuts.

“It’s clear that all of the low-hanging fruit has been picked, which means a deal is that much harder,” said Eaglen, a former Senate staffer.

The defense industry, which has vowed to help fight sequestration, is gearing up for a year’s worth of uncertainty with the sequestration cliff looming. And on Wednesday, the investment firm Guggenheim Partners issued a memo to investors warning “there will not be quick resolution” on the defense budget.

“The key wildcard remains whether the GOP Congress and White House can reach an agreement on lifting the FY16 cap on defense,” wrote Guggenheim analyst Roman Schweizer. “This deal may not come together until the very end of the fiscal year.”

Gordon Adams, a defense budget official in the Clinton administration who now teaches at American University, said there was a key fail safe for the Pentagon if sequestration can’t be thwarted: the war budget, which does not count against the caps.

“OCO is a safety valve,” Adams said, referring to the formal name for the war budget, Overseas Contingency Operations.

But war funding could still get hit with an across-the-board cut, according to Todd Harrison, a budget guru at the Center for Strategic and Budgetary Assessments, because funding for Afghanistan and ISIL operations does not count against the spending caps, Harrison said, but is subject to the across-the-board cuts if Congress breaks the caps, due to a quirk in the 2011 law.

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