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How debt-ceiling deal would cut federal deficits by $2.1 trillion

The debt-ceiling deal would not do enough to trim federal deficits to healthy levels. But it squeezes as much as possible from the limited middle ground between Republicans and Democrats.

By Staff writer / August 1, 2011

Senate majority leader Sen. Harry Reid (D) of Nevada pauses during a news conference on Capitol Hill in Washington Monday to talk about debt-ceiling legislation.

Jacquelyn Martin/AP


The spending cuts included in the bipartisan debt-ceiling deal would impose broad restraint on federal spending, but they are not going to put a sudden squeeze on programs like Social Security, nor will they of themselves solve America's deficit-spending problem.

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Instead, look for a new era of austerity that starts with less-visible programs and ramps up slowly – with only minor federal spending cuts next year.

It's a careful bargain, designed to allow Republicans to say they took a major stride to curb runaway spending and Democrats to counter that they are avoiding cuts that hit hard on groups like the poor, seniors, and college students.

In total, the plan would reduce federal deficits by about $2.1 trillion between now and 2021 – a substantial amount of belt-tightening, although the country would continue to run deficits unless further changes were enacted. Many economists say about twice that amount of deficit reduction is needed to put the country on a sound fiscal footing.

The plan puts new caps on discretionary federal spending – spending not tied to entitlements like Medicare or Social Security. The resulting cuts reduce federal deficits by about $917 billion over the next 10 years, the Congressional Budget Office (CBO) estimated Monday. In conjunction with those cuts, the nation's debt limit could be raised by $900 billion, alleviating a looming crisis as the lack of authority to borrow makes it hard for the Treasury to pay government bills.

In order to hit that goal for spending cuts, numerous federal agencies would be affected, budget experts say. Some $350 billion in cuts would come in the area of national defense. Proponents say the cuts will help unleash private-sector optimism and job creation, while critics say it will result in a damaging retreat from economy-boosting investments in things like universities, transportation hubs, and scientific research.

The CBO estimates that spending cuts would start fairly small (about $25 billion in the 2012 fiscal year) but would grow steadily over the decade. By 2021, federal spending would be some $156 billion lower than currently expected because of the discretionary caps.


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