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Small spending cuts to have little economic impact

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Posted: Aug 1, 2011 10:17 AM
Updated: Aug 1, 2011 10:17 AM
Source: Associated Press

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Topics: washington, debt, ceiling, economy, cuts, wbrz, louisiana

WASHINGTON - 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," says Mark Vitner, a Wells Fargo Securities economist.

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 Congressional Budget Office will offer its own analysis Monday.

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