The defense industry is worried last week’s budget deal on taxes could damage its negotiating position for the next “fiscal cliff” deadline two months from now, when across-the-board spending cuts would take effect.
The deficit debate is shifting from taxes toward spending cuts and the debt limit, where there will be more of a focus on new cuts to the Pentagon.
While the first fiscal cliff fight over taxes included the threat of massive across-the-board spending cuts, the sequel is going to be nearly all about where to cut spending. The Pentagon is the largest target outside of entitlements.
“Even when sequester was on the table along with the fiscal cliff, it seemed pretty clear that to get to a spending-side agreement you will have to go deeper in defense,” said Gordon Adams, a defense analyst at the Stimson Center.
“Now the trade-offs are all on the spending side,” he said. “If the Democrats are going to give anything in the Medicare, Social Security arena, they are almost assuredly going to ask for something in the defense arena.”
The spending debate will also ramp up tensions between GOP defense hawks in Congress and Tea Party Republicans. The two camps mostly agree on taxes, but not on defense spending.