Romney adviser: Cut entitlements to spare Defense, save jobs

President Obama and Congress should spare Defense from planned budget cuts by reducing entitlement spending instead, a campaign adviser to Gov. Mitt Romney said on Tuesday, arguing that Defense has a greater impact on jobs than spending on social programs.

“If you want to reduce the impact of government cuts on creating jobs, you should be looking more at entitlements” than military spending, John Lehman – an investment banker, a former secretary of the Navy under President Reagan, and a special adviser and co-chair of Romney’s Defense Working Group – said in an interview.

Romney has called for the planned Defense cuts to be postponed, but has not suggested where he would cut spending instead.

Lehman’s comments come as Romney’s presidential campaign has begun to join the growing Republican chorus in warning that the nearly $500 billion in defense spending reductions triggered by last year’s Budget Control Act could shatter the already fragile job market. The reductions are scheduled to take effect next year and will be spread over a decade. A wide swath of economists has warned that the cuts, combined with a variety of expiring tax breaks, could tip the economy back into recession.

Romney and GOP leaders have tried to pin the Defense cuts on Obama, who negotiated them in a package passed by bipartisan majorities in the Democratic-held Senate and the Republican-held House. In a press release Tuesday, Romney spokesman Andrea Saul said Obama was “pushing defense cuts that will jeopardize millions of jobs,” citing comments from the Defense Department and research commissioned by the Aerospace Industries Association, a trade group.

Lehman said job losses were already happening in the defense industry due to fears over the coming cuts, known as sequestration, and that to stop it, lawmakers and the president should reverse the ratio of defense and entitlement cuts in the package.

Defense cuts particularly hurt the economy, Lehman said in an interview, because defense spending creates more jobs and growth per dollar than entitlements, such as Medicare, Medicaid, and Social Security.

Economists call that bang-for-the-buck figure a “fiscal multiplier.” Lehman pegged the multiplier for defense spending at five times higher than for entitlement spending, meaning a dollar cut from defense hurts the economy five times more than a dollar cut from entitlements.

“Common sense would be, if you have to take cuts of this type with the Budget Act, it should be proportionate across all the budget types. But he’s protecting entitlements,” Lehman said. Some entitlements could be put more “into proportion” with the rest of the cuts, he said.

The Budget Control Act split its $1.2 trillion in reductions among defense spending and other spending, including about $350 billion from non-defense discretionary spending and about $100 billion from Medicare.

“If your objective was to maximize jobs, you’d cut entitlements five times more than defense,” Lehman said, citing the fiscal multiplier and advocating the opposite distribution of spending reductions than agreed under the current package.

Conservative economists have made similar arguments in recent weeks. Writing on the New York Times web site, University of Chicago economist Casey Mulligan said the government gets very different economic results when it purchases something, such as a fighter jet or a new highway, than when it transfers money to, say, an unemployment benefits recipient.

“When it pays people to produce, a number of people accept that offer, and the economy is larger as a result,” he wrote. “When government pays people for not producing, a number of people, in effect, accept that offer by working or earning less, and the result is a smaller economy.”

Several Congressional Budget Office studies, in contrast, find only a slightly larger fiscal multiplier associated with government purchases than with transfer payments, such as entitlements.