Defense chiefs prod GOP to accept higher tax revenues

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Defense company executives have expressed frustration at being pushed aside in the deficit talks between President Obama and congressional leaders, where attention has centered on the fate of the Bush-era tax rates that are set to expire in January.

Taking a hard line on revenue could help the defense companies get off the sidelines as they try to steer the debate back to the $500 billion cut slated to hit the Pentagon from sequestration. 

Dawne Hickton, the CEO of RTI International Metals Inc., said defense leaders have met “regularly and frequently” with Republican lawmakers about the fiscal cliff and urged them to accept tax increases.

"A lot of people in the [defense] business community are taking a pragmatic approach," in their efforts to forge a deal, Langstaff said. 

The willingness on the part of defense-sector leaders to back tax increases in order to avert sequestration should provide centrist lawmakers enough political "space to get a deal done," Langstaff said.

Critics of military spending say the embrace of higher revenues highlights the defense sector’s weak bargaining position in the fiscal-cliff talks.

“The whole fiscal cliff is a three-way heavyweight fight between taxes, entitlements and defense,” Ben Freeman of the Project on Government Oversight said on a response call to the defense industry forum.

“The Pentagon is actually the lighter of those heavyweights. The electoral implications are more significant for the tax-hike crowd than cuts to Pentagon spending are,” Freeman said.

There are some divisions within the defense industry about whether tax rate increases in a debt deal would be acceptable. Some smaller defense firms oppose increasing the individual rates, and say industry giants Lockheed Martin and Pratt & Whitney don’t speak for them when they call for higher revenue in a deficit deal.

David Hess, president of Pratt & Whitney, said it would be “presumptuous” of defense firms to tell lawmakers what a “fiscal cliff” deal should look like.

"We are not here to prescribe solutions," he said.

Hess was adamant, however, that the negotiations over sequestration "ought to [include] comprehensive tax reform" for corporations and individuals.

But as the clock continues to run out on a possible sequestration deal, defense-sector leaders have begun to manage expectations about what Congress can actually get accomplished before January. 

"We may not get a grand bargain in the next 28 days," Bush said, but added that there was "no reason" the White House and Congress could not come together and draft the framework to stop sequestration.

Developing that framework before the January deadline would allow Congress to "meet their obligations to us and the [American] public … to restore fiscal order" to the country, added Hess. 

Bush of Northrop Grumman said having a rough outline in place for a sequestration deal would also go a long way to alleviating the uncertainty in the defense sector.

On the other hand, Langstaff dismissed any notion of lawmakers punting a potential sequestration deal to the next Congress, noting the move would "buy a little bit of time [but] add to the overall confusion." 

"What we are asking for, fundamentally, is for our [elected] leaders to lead," Langstaff said.

— Jeremy Herb contributed.

This story was first posted at 2:12 p.m. and has been updated.