As our 2013 forecast series continues, American Enterprise Institute scholar and frequent Breaking Defense contributor MacKenzie Eaglen takes a grim look at the strategic consequences of the fiscal cliff. (Click here for the full series of forecasts so far).

The nation is heading over the fiscal cliff, an economic triple threat — tax hikes, spending cuts, and, soon thereafter, the debt limit — that has been forecasted by government agencies to throw us back into recession. Fix that, and government funding may still run out in March when the current continuing resolution expires, since Congress never got around to passing the 2013 appropriations bills. Tasked with solving these successive crises is the same President and, with modest changes, the same status quo Congress that failed to fix them last year. It’s exhausting, living constantly on the edge.

While the prospect of large additional military spending cuts seemed to make more headlines before November’s elections, the specter of sequestration has taken a back seat to the larger fight about taxes (both reform and rates). But it was always designed to turn out this way. President Obama held all the cards in crafting the BCA (as evidenced by his proposal, creation and inclusion of the sequester in the debt ceiling deal), and he has the most leverage to now unwind it. Or not.

Sequestration was always wrapped around the tax axle; an issue subordinate to the larger debate on spending, debt, and revenues. Still, reality bites, and it is slowly setting in across the river.

The big questions for Pentagon planners as Washington looks ahead to 2013 are: (1) When will the next budget for 2014 be revised downward to meet a post-sequester target? and, (2) Is the next QDR strategy going to simply be a rubber stamp for the pivot to Asia, or will it become a new one-war strategy that is the inevitable outcome of a sequestered military per the Joint Chiefs?

A budget-driven transformation

While all federal agencies, including the Pentagon, are now formally planning for sequestration, the Defense Department has yet to adjust on the fiscal year 2014 topline to account for this possibility. Sooner or later, however, defense leaders will have to build an alternate budget for 2014 and then gin up a similarly revised downward strategy to match.

The Chairman of the Joint Chiefs said as much earlier this year. “It is a strategy that has to have this budget to support it. Anything beyond this, we have to go back to the drawing board on the strategy,” Gen. Martin Dempsey told Congress. “We’ve got it balanced right now. But any change in the future means we have to go back and redo our strategy.”

Secretary Panetta piled on, highlighting the obvious that “If additional efforts are made to go after the defense budget, I think it could have a serious impact in terms of our ability to implement the strategy.”

Still, some brass are clinging to the hope that they may not have to revise the January document in light of sequestration — if it occurs. But even casual observers know that the guidance issued before the 2013 budget simply did not add up. The long-standing strategy-resource mismatch was never before so rawly exposed as with the latest guidance and subsequent budget.

The pivot was so powerless that senior Navy officials were repeatedly called over to the White House throughout the Presidential election season to explain, re-explain, and then explain again how and why the Administration was pivoting to Asia yet shrinking and aging both the Navy and Air Force.

Regardless of whatever window dressing is used to pitch any new strategy if needed, the bottom line is that it will force the U.S. military to abandon for good its long-standing two-war construct to one that looks more like the defense posture of the rest of the world.

The two-war construct, as imprecise a measurement as it was, provided a basis of comparison against which to assess American hard power. The ability to fight and win in two major engagements at once proved to be a reasonable approximation of the forces necessary to maintain a military with global reach and responsibilities. The official death of this standard means that America will not be able to do as much around the world because of increased strain on shrinking forces.

It would seem the newest report by the intelligence community predicting the U.S. will lose its superpower status will turn out to be quite accurate, unfortunately.

New year but same old tune

Fingers are crossed in the five-sided building that even if January 2nd comes with no grand bargain, punt, or patchy fix for the larger cliff that maybe, just maybe, Congress and the White House will belatedly agree to a deal in the spring and try to reverse or undo the implementation of the sequester.

This is an understandable if not sympathetic position for officials to take. Secretary Panetta said clearly to Congress in February that the Budget Control Act’s defense cuts–before sequestration — produced an outcome with absolutely “no margin for error.”

He’s right.

But it increasingly seems clear that the nation is going over the fiscal cliff. The longer federal agencies, small businesses, and taxpayers live on the other side of the cliff, the less urgency will exist to address the only-simmering crisis and the easier it will be to stay there permanently.

The only question is in what order and by how much key defense priorities will take a hit in the 2014 budget. The favored pot of money raided since 2010 has been modernization. That trend will surely continue and accelerate in a post-sequester budget.

This trend will be exacerbated by a continued decline in research and development (R&D) spending. As a new report by the American Enterprise Institute notes, R&D spending has already fallen by 17 percent in real terms since the start of the Obama administration, and is currently projected to decline by another 12 percent by 2017. As R&D money declines, the Pentagon will be left without funding for many key next-generation and potentially game changing technologies.

Nothing will ultimately be spared from feeling the pain, not even servicemembers or their families, under sequester. Yes, military pay is exempt, but not so military benefits; morale, welfare and recreation programs; base infrastructure and support programs; or necessities like health care.

This generally tracks with the defense community’s growing consensus on how to implement the defense drawdown. Reports have been flying out of research groups and think tanks emphasizing similar capabilities to retain and what to toss overboard.

As Gordon Adams points out, there are several common themes across of all these reports that speak to the conventional wisdom regarding where the Pentagon might invest, and where the military should cut. Among the points of emphasis include special operations forces, increased attention on cyber warfare, and, despite current negative trends in future research and investment, defense R&D spending. Areas for additional reductions identified by defense analysts across town and the ideological spectrum include ground forces, the nuclear arsenal, and modernization programs, especially in areas like tactical aircraft.

The reports, authored by think tanks like CSIS, RAND, the Center for American Progress, the Project on Defense Alternatives, and the Stimson Center, demonstrate just how strong the establishment consensus has become on the acceptability of defense cuts. Although the Stimson report did include a scenario for increased defense resourcing, by and large, the analysts presuppose further defense budget reductions based on many of the same assumptions such as a focus on counterterrorism and a rebalance to the Asia-Pacific.

The spending cuts outlined in these reports represent the most likely scenarios come FY 2014, regardless of whether sequestration is officially triggered on January 2. Even without a full and immediate sequester, expect further defense cuts totaling amounts that approach sequestration.

As the Pentagon’s senior leadership has warned, cuts of the magnitude of sequestration — even if accomplished by a less brute-force mechanism — will put virtually all current plans at risk and surely necessitate redrawing the already insufficient, but much-touted, January 2012 strategic defense guidance.

Unfortunately, much of the writing for 2014 is already on the wall. With further budget cuts coming down the pipe and the Pentagon’s “winners” and “losers” already largely identified, there is little left to guess about at this point.

Edited 10:30 am to clarify the debt limit will (probably) not be hit as soon as the tax hikes and spending cuts.