Republicans Go Wobbly on Defense in Debt Limit Talks

In life, you can blaze a trail or walk the plank.

It’s only a matter of what guides you.

A case in point is today’s Washington Post story regarding the ongoing debt limit talks, and an apparent, new willingness among Republicans to target “sacred cows” such as defense spending.

According to the Post, “Senior GOP lawmakers and leadership aides said it would be far easier to build support for a debt reduction package that cuts the Pentagon budget, a key Democratic demand, than one that would raise revenue by tinkering with the tax code.”

Speaker Boehner, tell me it ain’t so.

Tell me that Grover Norquist hasn’t terrorized the House Republican Caucus into degrading our military capabilities to uphold an absurd definition of what constitutes a tax increase.

Tell me that ideological rigidity isn’t going to force our new majority off the cliff after only six months.

Defense is the wrong place to look for cuts for two reasons.

First, according to the 2010 Quadrennial Defense Review, after a decade of war, the US defense inventory needs to be “recapitalized and modernized.” Beyond the need to replace equipment destroyed or worn out in Iraq and Afghanistan, US military stock has aged without replacement.

The average Air Force tactical fighter is now more than 20 years old.

This situation becomes more acute when we realize that US force levels are down 30% from 1990 levels, but that new missions have expanded exponentially. The defense planning of the mid to late 1990s never envisioned or planned for (now) three regional wars and a robust, global counter-terrorism campaign.

Even at a time of fiscal challenge at home, Defense is not something we can afford to shortchange.

This is not to say that Defense programs are beyond scrutiny.  Indeed, think tanks in DC have developed innovative plans that could conceivably save between $70-90 billion in Defense efficiencies that could usefully be reinvested in procurement and R&D without any need for increased defense spending.

But it should not be the basis for structural cuts.

Second – and listen up all you Democrats – defense spending is the most efficient economic stimulus available to the government at this time.

Spending flows from the government to a network of private sector companies that competitively bid on projects. While the defense industry is dominated by several large players, subcontractors in the defense space are crucial and numerous; many of them small businesses.  The impact of defense spending is nationwide and diverse, impacting companies that manufacture parts and wiring, to IT and logistics.

And unlike the failed “Stimulus” of 2009, the USG will not be setting up a system of nebulous grants with questionable value.  The defense industry is established and regulated.  The results of the spending are seen in the modern weapons, logistical support and superior training to equip or warriors. 

If that argument is not persuasive, look at it this way. The top 20 defense contractors employ 1.6 million Americans. That’s roughly three times the number of jobs that the entire US economy created since June 2009, and only a fraction of the total number of Americans directly or indirectly working to support national defense.

Cuts defense spending and you will be cutting defense jobs.  Not only do we get a less capable force, but the action will directly impact employment.

Misguided Republicans are looking to defense because they have allowed themselves to be boxed in by a “sharia law” definition of what constitutes a tax increase. 

Republicans have been sensible and principled to stand up to Democratic demands for an end of the Bush income tax cuts and an increase in capital gains taxes. 

But the very influential conservative group, Americans for Tax Reform (ATR), has effectively made it impossible for Republicans to address distortions in the tax code – known as “tax expenditures” – by labeling any repeal as a tax hike.

According to OMB, the US budget has nearly $900 billion in “tax expenditures”; highly specific tax breaks that in the absence of legislation, would normally bring additional revenue. Some are rooted generosity, such as the tax break for charitable contributions.  The top three tax expenditures are highly popular (and thus politically explosive) dealing with tax exemptions on employer-provided health care, mortgage interest and pension contributions.

But others are less defensible generally, and in this particular financial climate, including subsidies for agriculture and certain business deductions.

 But none of this matters to ATR.

The most immediate and ridiculous example of this is ATR’s opposition to repealing government sanctioned ethanol subsidies, thought they distort the market, prevent competition and increase the cost of domestically produced ethanol.

For ATR’s purposes, any legislation that repeals irrationality from the tax code is a tax hike.

The White House and Republicans are trying to strike a deal to raise the debt limit before the US begins defaulting on its debt on or about August 2nd.

To that end, Vice President Biden and a bipartisan team from Congress have been working toward a deal that would reduce the budget dollar for dollar with any debt ceiling increase. While significant progress has apparently been made, Republicans walked away last week when Democrats insisted that tax increases be on the table.

So here are the facts.

No deficit reduction deal can pass without Democratic support.

Democratic support will depend on the extent to which Republicans agree to revenue increases as well as spending cuts.

But by embracing the ATR’s position in the budget negotiations, the GOP effectively strips itself of principled bargaining leverage to weed out economic distortions in the federal budget while also providing for additional revenues that are not new taxes on production and investment.

Indeed, in the face of entrenched Democratic opposition to any changes in entitlements, it leaves the GOP with the unappetizing course of evicerating discretionary spending, such as the FBI, Homeland Security and Health and Human Services, or taking the first steps to cripple our ability to fund a next generation military that can meets the demands of US security.

Make no mistake where the Democrats are on this. 

 Discussing the debt ceiling debate, Representative Barney Frank said, “Defense spending is damaging spending. Many of us believe it does more harm than good to our people and around the world.“

Is this really the side that Republicans want to align themselves with?

Better to rise from the pit of orthodoxy and dare to be bold. The courageous and serious, not the intransigent, will be rewarded.