Defense Contractors and the Sequester

August 1, 2012

Uncertainty over spending cuts triggered by the Super Committee’s failure and tax increases scheduled at the start of next year unless Congress acts has hindered business hiring and investment decisions.

Grid-locked politicians seem unable to tackle sensible spending cuts themselves, so widespread, unidentified spending cuts are set to hit the defense sector especially hard. In light of the “fiscal cliff,” defense contractors are scrambling to prepare for the worst-case scenario. Decreased funding to the Department of Defense will mean cuts to projects and programs contracted to outside businesses. Defense contractors are preparing to respond to the change in demand by dismissing tens of thousands of employees.

Because contractors do not know the severity or the specific programs that are to be cut, they are prepared to issue a general notification to employees warning of likely job cuts at the beginning of November.

Decreased government spending is necessary, and with defense spending accounting for over 20% of all annual spending, it needs to be cut. But, clarity is needed in order to help defense contractors and businesses coordinate appropriate action. Fear over lay-offs could be avoided if Washington would act responsibly and make the necessary cuts to stabilize our budget now, instead of waiting until after the elections.

To get the facts behind defense spending in the United States, take a look at our infographic “Spending and Defending.”

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