Defense cuts may have less impact on Virginia’s economy than many commentators, including myself, have feared. Much ado has been made of what “sequestration” — automatic spending cuts imposed upon the defense budget if Republicans and Democrats can’t agree on any other form of debt reduction — will have upon the Old Dominion’s defense-dependent economy. Under sequestration, the feds would have to slash 10% from the $5 trillion in spending plans through 2021.
A widely quoted study published by George Mason University’s Center for Regional Analysis estimates that Virginia would lose 207,000 defense-related and non-defense jobs if such cuts were implemented.
But Tim Loughran quotes a contrarian view in “Peering over the Fiscal Cliff” published in the current edition of Virginia Business magazine (no link). According to Veronique de Rugy, a senior research fellow with GMU’s Mercatus Center, core Pentagon spending (excluding the cost of overseas wars) under a sequestration scenario would plunge all the way to$492 billion in FY 2013, a figure (adjusted for inflation) not seen since… 2007.
Oh, the horror!
The Pentagon’s core budget currently is on track to rise about 2 percent every year through 2021, or a total of $5.27 trillion, according to de Rugy. If sequestration cuts are fully enacted — which de Rugy doubts will ever happen — the budget still would increase by an annual average of about 1 percent to $4.85 trillion.
That will represent a major slowdown since the post 9/11 boom in defense, intelligence and homeland security spending, and Virginia will lose a major propellant to economic growth. But growth in the range of 1.0 to 2.0 percent annually hardly looks like Armageddon in an economy struggling to grow 2.0 to 2.5 percent a year.
Assuming this is all accurate, my concern is for the longer term. There is no way to balance the federal budget without slashing domestic spending, reforming entitlements, reforming the tax code and cutting military spending. If Congress can’t muster the will to make real cuts in military spending — not just reductions in projected increases — it won’t have the cajones to cut much else. We may avoid sequestration. But can we avoid Boomergeddon?