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How Will The Fiscal Cliff Really Affect Defense?

Wednesday November 28th, 2012   •   Posted by Craig Eyermann at 6:36pm PST   •  

In August 2011, President Obama signed the Budget Control Act of 2011 (or BCA), which is the law that created the so-called “fiscal cliff” that, if Washington D.C. politicians such as President Obama are to be believed, threatens potential disaster for the U.S. economy.

The BCA combines income tax rate hikes on all Americans and government spending cuts that, unless the federal government acts otherwise, will go into effect in 2013. In that year, the fiscal cliff will lead to an estimated additional $536 billion in tax collections and $500 billion in federal government spending cuts.

Since half of the spending cuts associated with the fiscal cliff would affect the nation’s defense programs, those particular cuts have been a source of concern. What effect might these cuts have on the nation’s security?

The Mercatus Center’s Veronique de Rugy has charted out how the BCA’s mandated spending cuts will affect overall defense spending for the next ten years:

She observes:

As the chart shows, defense spending has almost doubled in the past decade in current dollar terms and will continue to grow in spite of automatic cuts set by the BCA. Clarifying these figures reveals that sequester cuts do not warrant the fears of policymakers who warn about “savage cuts” to the defense budget.

That reality perhaps explains the unusual reaction of the Fortune 500 company Honeywell executive Mike Madsen to the prospect of defense spending cuts for his company:

While most large U.S. defense contractors have warned a $500 billion cut in military spending over the next 10 years could be disastrous, Honeywell International today bucked the trend and announced it would welcome the reductions.

During a meeting with investors Mike Madsen, president of Honeywell’s defense and space unit said that the company recognizes that a majority of the budget cuts that make up the so-called “fiscal cliff” will happen.

“We’re not really fighting these; they need to occur,” he said.

If only other recipients of the federal government’s largesse would take such a mature view….

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November 2012