Fear of sequestration: Collateral damage IT SEEMED a good idea at the time. But sequestration, an ugly word for an ugly thing, now threatens to rip the heart out of America's defence budget. Sequestration was part of the deal hammered out last August to extend America's debt-ceiling when it was on the verge of default. The deal set up a congressional "super-committee" charged with cutting the deficit by $1.5 trillion on top of the $917 billion already agreed on. Sequestration was the gun pointing at the super-committee's head. If it failed, $1.2 trillion-worth of across-the-board cuts would be automatically triggered on January 2nd 2013, split evenly between discretionary security and non-security programmes over the next nine fiscal years. In November, the super-committee admitted failure. Since then, nothing has happened. But the sense of foreboding has grown. The Pentagon is now faced with having to slice another $55 billion a year from its spending in each of the next nine years, on top of the cut of $487 billion over ten years already agreed to. Military pay and benefits are exempt from the sequester, as are "overseas contingency operations" (the war in Afghanistan), so the money will have to come out of a remaining defence pot of $375 billion. That translates into an immediate 15% cut, according to a study carried out by the Bipartisan Policy Centre (BPC). Worse still, the law does not allow the Pentagon any discretion over how and where the cuts are made. And because defence budgets are dynamic and reflect changing priorities (the Pentagon is shifting towards a greater emphasis on air, sea and cyber weaponry that will be needed for its strategy of "rebalancing" towards the Asia-Pacific region) the effects will be even more perverse than at first sight. For example, the Pentagon wants to spend a mere $74m on heavy tanks next year; but the BPC calculates that because the sequester is based on "continuing resolution" funding - rather than the request, which reflected the president's strategic priorities - it will be forced to spend $403m, 442% more than it wishes to. On the other hand, the Pentagon is planning to put $1.8 billion next year into an urgently needed new aerial-tanker programme, but will now be allowed to allocate only $781m to it - a 57% cut. The defence secretary, Leon Panetta, has called sequestration a "meat-axe" while the chairman of the joint chiefs of staff, General Martin Dempsey, says that the cuts will be catastrophic, leaving the armed forces "hollowed-out." Mr Panetta is so appalled that he has ordered the Pentagon not even to begin planning for sequestration - defiance that is looking increasingly untenable. Meanwhile, the defence industry is bracing itself for the possibility that almost every significant contract may have to be renegotiated. As Todd Harrison of the Centre for Strategic and Budgetary Assessments observes, sequestration is a bad way to save money. As procurement is cut, the unit costs of new aircraft and ships increase until cancellation looms as the only sensible option. Nor does it confront the real problem in the defence budget - the ever-expanding share taken by pay and benefits. The Hoover Institution's Kori Schake, a defence official in several administrations, says that by 2014 the bill for ex-servicemen's pay and benefits will exceed that of the active force while, on current trends, by 2038 pay and benefits will absorb the entire defence budget. In an effort to concentrate minds, Senators John McCain and Patti Murray moved a bipartisan amendment last month to force the Department of Defence, the Office of Management and Budget and the White House to produce details of sequestration's impact. But Republicans are still arguing for the armed forces to be entirely exempt, while leaving non-defence spending to take the full hit - a non-starter for Democrats. For its part, the Obama administration seems to intend to sit tight and wait for its opponents" nerves to crack. That may be happening. The Republican chairman of the House Armed Services Committee, Buck McKeon, has called for legislation to delay sequestration in the hope of getting a broader budget fix later. He says he is now "willing to look at anything" Democrats might propose to break the impasse. There is also talk of taking some of the poison out of sequestration by allowing the Pentagon to decide where the cuts should fall and loading them towards the out-years. Mr Harrison is sceptical: "The law wasn't intended to be good policy; it's meant to be a deterrent. Neither side wants to fix it. Nothing much is likely to happen until after the election in November. This means that, implausibly, the lame-duck Congress will have to find a compromise after a bitterly fought campaign. The betting is that sequestration will happen, but will be so awful that an alternative is eventually found. The real battle is not over defence, but over soaring entitlement costs and an inadequate revenue base to pay for them. The Pentagon is just collateral damage.