GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

Recent weeks have seen a flurry of consolidation plans published in the United States: by the National Commission on Fiscal Responsibility and Reform, appointed by President Barack Obama, by the centrist Bipartisan Policy Center, and by think-tanks on the left and the right.

From a European perspective, proposed cuts in U.S. defense spending have the most far-reaching implications. As London, Berlin and Paris trim their own military outlays, transatlantic friction over defense burden-sharing may be unavoidable.

The National Commission has suggested decreasing from four to two the U.S. combat brigades now stationed in Europe, reducing US military personnel there by 33,000. The Bipartisan Policy Center would cut U.S. force levels in Europe even more. In addition, the National Commission has called for cutbacks in the F35 Joint Strike Fighter, which is supported by a number of European governments.

Given the limited likelihood of a European war, the suggested troop drawdown is unlikely to impair European security. But it will hurt European communities that have grown economically dependent on U.S. bases. Shorter production runs for military hardware could lead to higher per-unit costs for European governments that are committed to buying the F35, frustrating Europeans' plans to cut defense spending.

Europeans have long complained about Washington's short-changing of foreign aid. As a percentage of its economy, the United States devotes half of what Germany and France do to development assistance and a fifth of what Sweden spends. Will this change?

The most recent budget drawn up by the Obama administration calls for an increase in American development assistance from $32 billion (€24bn) today to $45bn (€33.7bn) in 2015. The National Commission would slow that increase. The commission also proposes cutting the United States' annual voluntary contribution to the United Nations – the amount America contributes beyond its assessed dues – by $300 million (€225m).

Neither a slower increase in foreign aid nor a cut in UN pledges would do irreparable harm to development aid or to the UN system. They are, though, reminders of the budgetary limits on the United States' future funding of international activities.

Proposed cuts in U.S. domestic spending could also reverberate in Europe.

The National Commission would slash U.S. farm spending by about $1.1bn (€825m) each year through to 2020. And the Bipartisan Policy Center would annually reduce commodity price and farm income-support programmes by $1.7bn (€1.3bn) over that period.

Such cuts would never take place in isolation. Washington could be expected to put new pressure on Brussels to make proportionate reductions in Common Agricultural Policy spending, fueling divisions on this topic within the EU.

American budget hawks also hope to revamp corporate taxation in ways that could affect U.S. investment in Europe.

The National Commission proposes cutting the corporate tax rate from 35 percent, which is higher than in any European country, to 28 percent, which is lower than that in Belgium, France and Spain and comparable to the rate in the UK. This tax cut would eliminate a major disincentive to headquarter firms in the United States.

A coalition of liberal organizations – the Economic Policy Institute, the Century Foundation and the advocacy group Demos – has proposed ending the deferral of income earned overseas by the subsidiaries of U.S.-controlled corporations. Were this to become law, one of the tax benefits of American investment in Europe would be eliminated.

How much austerity Washington will actually accomplish in the next year remains to be seen. The recent White House-Congressional Republican tax deal will actually increase the deficit and the debt. But the need for American budget cutting is inescapable. And when the United States eventually tightens its belt, Europe will not escape some of the pain.

Bruce Stokes is a senior transatlantic fellow for economics at the German Marshall Fund.