Small Spending Cuts to Have Little Economic Impact

Monday, 01 Aug 2011 12:28 PM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink

WASHINGTON (AP) — The first phase of a deal to raise the government's borrowing limit would pose little threat to the economy in the short term because almost none of the spending cuts would occur before 2014.

Discretionary spending, which excludes Social Security, Medicare and Medicaid, would be cut by only $7 billion in 2012 and $3 billion in 2013, according a summary by Senate Democrats. That's a tiny fraction of the nation's $14 trillion economy.

"That's certainly inconsequential for the economy if that's all it is," said Mark Vitner, a Wells Fargo Securities economist.

The independent Congressional Budget Office offered its own analysis Monday. It said the agreement would reduce government spending by $25 billion next year. That's compared to current law, which factors in a projected increase in spending.

The first phase of cuts would reduce spending by $917 billion over 10 years. A congressional committee would decide on a second phase of cuts totaling $1.5 trillion.

The Obama administration had said the government would have run out of cash to pay its bills without an increase in the $14.3 trillion borrowing limit by Aug. 2.

The deal comes as the U.S. economy is worsening. Manufacturing activity dropped to its lowest level in two years, according to a survey released Monday.

And overall economic output dropped below 1 percent in the first six months of this year, according to a government report Friday. Government spending fell for the third straight quarter, contributing to the slower growth.

Democratic lawmakers advocated smaller cuts over the next two years to avoid hurting the fragile economic recovery, said staffers from both parties with knowledge of the negotiations. The staffers said Republicans wanted upfront cuts totaling tens of billions of dollars. The limited cuts during the first two years represent a major give-back by Republican negotiators, the staffers said.

The staffers spoke on condition of anonymity because they were not authorized to discuss the negotiations.

The overall approach follows advice offered this year by Federal Reserve Chairman Ben Bernanke. In testimony to Congress, Bernanke has advocated for a long-term deficit-reduction plan, but has cautioned lawmakers not to make deep cuts while the economy remains weak.

The deal enables the government to avoid defaulting on the nation's debt. Credit ratings agencies may still downgrade their ratings of U.S. debt.

__

AP Business Writer Daniel Wagner contributed to this report.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

Immigrant Children Landing in Every State - Texas Has Most

Friday, 25 Jul 2014 20:45 PM

More than 30,000 children who've poured over the U.S.-Mexico border as part of an unprecedented flood of migrants have b . . .

Reps. Fleming, Sessions Spar Over House GOP Border Plan

Friday, 25 Jul 2014 20:27 PM

A proposal by House Republicans to slash President Barack Obama's emergency aid request to address the illegal immigrant . . .

Issa's House Oversight Panel Rebukes Obama WH for Ignoring Subpoena

Friday, 25 Jul 2014 20:25 PM

A top White House political adviser's refusal to testify twice before the House Oversight and Government Reform Committe . . .

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved