Tags: debt | cut | us | spending

NYT: Debt Deal Doesn't Really Cut Federal Debt

Wednesday, 03 Aug 2011 12:19 AM

By Michael Kling

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The recent deal that raises the debt ceiling and calls on Congress to make $2.1 trillion in spending cuts in the next 10 years doesn’t actually cut spending.

At the end of 10 years, federal debt will be even higher than it is now. That's because the agreement doesn’t tackle federal spending on healthcare, The New York Times reports.

The credit rating of the U.S. is still at risk because of that. Rating agencies might still remove the government's AAA credit rating that allows it to borrow at low interest rates.

Federal debt will probably be more than 100 percent of the country's total yearly economic output by 2021, mostly because of rising costs of Medicare, Medicaid as well as Social Security, reports the Times, citing the Congressional Budget Office. Experts, the Times article reports, think such a large amount of debt could drag down the economy.

Bringing that debt under control calls for $4 trillion in spending cuts over the coming decade, almost twice as much as recent budget agreement. With $2.1 trillion in cuts, the national debt will equal 80 percent of national economic activity in 10 years.

Some observers doubt Congress will abide by the agreement and cut spending by even that much. In the 1980s and 1980s, Congress voted to limit spending, and then later kept giving itself exemptions.

Although the budget agreement doesn’t make immediate cuts to Medicare, it would enact a 2 percent across the board cut to Medicare providers beginning in 2013 if Congress doesn't find how to cut spending by $1.5 trillion over the next 10 years by the end of this year, reports an article in the Los Angeles Times.

Advocates say that reduction could prompt health care providers to reduce or eliminate health care for the elderly, but the Obama administration says it will help control spending by prompting healthcare providers to find savings.

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