Writing in the Fiscal Times Bruce Bartlett notes that Republicans have to seriously contemplate raising taxes in order to avoid automatic cuts to defense spending. It seems that there are fears that the scheduled cuts could cost Republicans the election:
An important factor putting the defense sequester on the table now is an obscure law called the Worker Adjustment and Retraining Notification Act, which requires companies anticipating mass layoffs to give workers at least 60 days advance notice. That means the layoff notices for defense contractors affected by the sequester on January 1 will be sent out no later than November 2, just 5 days before the election.
There is also evidence that the stocks of defense contractors are suffering as investors expect a big hit to earnings from layoffs related to the sequester.
Belatedly, some conservatives have now noticed that cuts in federal spending cost jobs. They are trumpeting a study by the Aerospace Industries Association predicting the loss of 2 million jobs if the defense sequester takes effect as scheduled. This includes not only jobs directly lost in the defense industry, but those indirectly lost as laid off workers cut back their spending for goods and services.
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It stands to reason that if cuts in defense spending cost jobs, then cuts in nondefense spending also cost jobs. And if spending cuts cost jobs, then spending increases must be able to create them.
The obvious way out of this dilemma is simple: raise taxes instead. Achieve the same amount of deficit reduction but by through higher revenues rather than defense spending cuts. Given that federal revenues are now just 15.8 percent of the gross domestic product, compared with a postwar average of about 18.5 percent, it’s obvious that revenues could rise a lot without jeopardizing economic growth.
