With a more Democratic Senate and a second Obama term, McConnell may be more willing to compromise. But the same spirit does not hold true on the other side of the Capitol, where House Republicans have not gone along with House Speaker John Boehner's latest proposals.
And if Democrats are unwilling to give ground on cuts to entitlement programs, Republicans could hold firm on sequestration, a defense lobbyist says.
According to the new law, the penalty of sequestration imposed for lawmakers' failure to reduce the deficit by $1.2 trillion would be imposed on March 1, Harrison explains. But new budget caps are imposed on March 27, the same day that the current continuing resolution expires.
If sequestration takes place, the cut to defense in fiscal 2013 is just $45 billion, down from a Pentagon-estimated $62 billion, according to Hale.
Hale and Deputy Defense Secretary Ashton Carter testified to Congress in August that sequestration would force a cut of four F-35 Joint Strike Fighters in fiscal 2013, compared with the budget request. If sequestration does take place in March, it would represent a 9% reduction on every line item in the budget, Hale now says. That would include JSF production and research for Lockheed Martin's prized fifth-generation fighter, though program officials will have to decide how those cuts are directed within each project line item.
Decreasing production quantities could force the government to renegotiate contracts—without much leverage, Harrison says, citing the KC-46A tanker program as an example. The program is receiving $1 billion less than it expected under the terms of the fiscal 2013 continuing resolution. Boeing bid aggressively to win the contract. Now, if the government has to renegotiate, Harrison asks: “Are we in position to maintain a competitive price?”
A number of defense industry analysts believe that the deal on tax extensions paves the way for an agreement to avert across-the-board spending cuts.
“It looks like a small step, but I think it was quite a big one,” says Richard Aboulafia, vice president for analysis at the Teal Group. “Hopefully, it's a small bite out of a big balloon.”
According to Aboulafia, because those who were unwilling to compromise on spending issues were marginalized in the fight over tax increases, a deal on avoiding sequestration is more likely.