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Defense cuts could worsen unemployment: Pentagon

Panetta listens to a question during his first news conference at the Pentagon in Washington
Panetta listens to a question during his first news conference at the Pentagon in Washington

By Phil Stewart

ABOARD A U.S. MILITARY AIRCRAFT (Reuters) - Defense Secretary Leon Panetta is warning members of Congress that threatened defense cuts in the order of $1 trillion over the next decade would add 1 percentage point to the U.S. unemployment rate, a senior defense official said on Thursday.

The assessment, disclosed by the Pentagon, appears to be the latest attempt by the new defense secretary to buck bigger defense cuts he says could be "devastating" to the U.S. armed forces and national security.

Congress reached an agreement in August that calls for at least $350 billion in cuts to national security spending over 10 years, and Pentagon officials are looking at ways to do that without harming U.S. security interests. Washington is wrestling with record budget deficits and a stubbornly high 9.1 percent unemployment rate.

But the agreement also created a committee to seek further spending cuts. If the bipartisan panel fails to reach a deal by the end of the year, it would trigger automatic across-the-board reductions that could slash defense and national security spending by a further $600 billion.

"What we're talking about there is in the neighborhood of about a trillion dollars of defense cuts," Pentagon spokesman George Little told reporters flying with Panetta to Washington after talks with Australia in San Francisco.

"We believe that would result in job cuts that would add potentially 1 (percentage point) to the national unemployment rate."

A senior U.S. defense official, speaking on condition of anonymity, told reporters that Panetta delivered details of that assessment to members of Congress during the past week.

The Pentagon assessment concludes that cuts of $1 trillion would result in the smallest Army and Marine Corps in decades, the smallest tactical Air Force since it was established after World War Two. It would also result in "the smallest Navy in nearly 100 years," Little said.

Some defense experts say the Pentagon's budget has become bloated over the past decade and could absorb as much as $1 trillion in spending cuts over the next 10 years.

But Little said the Pentagon assessment concluded that was not the case and that cuts over and above the level already in the works would be disastrous.

"That scenario would be devastating to our nation's security," Little said.

Defense industry officials, led by Jim Albaugh of Boeing Co, met with Panetta at the Pentagon on Tuesday to express their concern about budget cuts.

Defense contractors have also launched a broad lobbying campaign to drum up public support for holding the line on U.S. military spending cuts.

Lockheed Martin's F-35 Joint Strike Fighter, the Pentagon's costliest weapons program, is under close scrutiny for budget savings in Congress.

The Senate Defense Appropriations subcommittee proposes to cut it by $695 million for the fiscal year beginning October 1. It has also recommended termination of the Joint Light Tactical Vehicle Program, a possible replacement for Army and Marine Humvee vehicles.

(Editing by Peter Cooney)

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