Levin: Budget Cliff Can Be Averted, but in Time?

The Democratic chairman of the Senate Armed Services Committee said Tuesday he thought Congress could avert automatic, across-the-board budget restrictions set to take effect at the end of the year -- but feared it might not be able to act quickly enough to forestall some of their near-term negative effects.

Michigan Sen. Carl Levin told reporters at the National Press Club that he thought most Republicans and Democrats agreed on the ultimate need to avert the restrictions, and that lawmakers could eventually reach a deal to stop them. The problem, he said, is that if Congress waits until its session after November's elections, the uncertain outlook might already have caused widespread layoffs and other problems for the defense industry.

"That specter created by sequestration, I believe, is a real threat to this economy," Levin warned. "We must [resolve] it in time to avoid a severe weakening to this economy. That's the greater challenge we face: to see if we can't possibly reach the compromise we know will be there at the end, but to do it in time to avoid this mindless and dangerous weakening of the economy."

Congress created the threat of "sequestration" last year as a prod to its bipartisan "super committee" -- if its members couldn't agree on a mutually acceptable way to reduce $1.2 trillion from the long-term U.S. deficit, that amount would automatically be "sequestered" across the board. For the Defense Department, that could mean a reduction of $487 billion in budget growth over the next ten years, a prospect that has made Pentagon officials and congressional defense advocates howl.

And defense industry leaders have not only howled about that potential reduction in Pentagon spending over the long term, they've also warned that the fear over whether or not it would happen is already causing deep tremors among the vendors that provide America's military hardware and services. Defense firms have warned they'd have no choice but to assume sequestration will happen and begin laying people off this fall, months before the restrictions actually would take effect.

That's why Levin and other top congressional leaders have begun urging Congress to try to address the sequester now, as opposed to waiting until after Election Day. Both parties expect the results of the election to give a mandate to one side or the other, but until then, the Republican-controlled House and the Democratically controlled Senate have been gridlocked, unable to agree on anything.

Republicans -- led by House Armed Services Committee Chairman Rep. Buck McKeon of California -- blame Democrats. The House has already endorsed a plan that would postpone the first year of sequestration restrictions for DoD by freezing the federal workforce, giving Congress another year to reach a permanent deal, McKeon argues.

Levin blamed Republicans. He pointed out that almost everyone in both parties agrees that Congress must reach a deal, that it must involve some spending cuts -- but that it also must involve some new "revenues." Levin said lawmakers could protect defense and other programs by closing tax "loopholes" and potentially raising taxes on the richest Americans. The problem, he said, was that the ultra-conservative Tea Party elements in the GOP are blocking party leaders from taking steps they might otherwise agree were reasonable.

"I'm not sure they care about sequestration as much as most Republicans and most Democrats," he said.

David Langstaff, the CEO of defense contractor TASC -- who appeared with Levin and retired Marine Gen. James Cartwright -- made clear that industry leaders are tired of this game of chicken. Langstaff warned that Americans would see the first major effects from sequester in October, a month before the election, because the federal government's new fiscal year would begin with managers having no confidence about their ability to make payments or award contracts that would be honored for the rest of the fiscal year.

"The government will be careful about spending money; they won't know their budgets," he said. "Industry is facing a very difficult situation here beginning in our calendar fourth quarter. Focusing just on January ignores the point that behavior's going to start to change in October."

Levin conceded that for as much pressure as he'd like to put on colleagues to act sooner, he had no way to know what Congress would actually do. He said he would like for Congress to try to restore some public confidence in its ability to act -- perhaps by tackling at least some of its mounting year-end agenda soon. He also acknowledged that lawmakers could just punt, as they have so often in the past.

"There's a chance that could happen," he shrugged. "I don't think it's the right way to go, but to say there's no chance Congress won't kick the can down the road would be inconsistent with a hell of a lot of evidence. Not only do we kick the can down the road but we have special gym shoes that are built just for that."