As of January 22, the current public debt totals more than $12.3 trillion. The Congressional Budget Office reports that if current laws and government spending remain the same, the budget for FY 2010 is estimated at more than $1.3 trillion.
During the Middle Class Task Force meeting, Vice President Biden and President Obama announced new tax cuts to help American middle class families. The following day, Obama proposed a freeze on spending.
Tax cuts generally increase consumer spending. This year American families will most likely use additional savings to pay off their debts. This also happened following last year’s economic stimulus.
A freeze in government spending would help reduce the federal deficit. However, the announced budget freeze accounts for only 17% of the budget, leaving out large sectors with increasing costs (Medicare, Medicaid, military spending, and homeland security.)
The rate of future economic growth looks increasingly uncertain. New laws reducing government revenues and increasing government spending could still increase the federal budget deficit. By 2020 the federal debt could reach 67% of the GDP, the highest level since the 1950s.
Where do we go from here? There are no easy answers. For a look at some of the options, take a look at the CBO’s suggestions for decreasing the federal deficit.