Federal Debt and Deficit Reduction Plans Federal Essay

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Federal Debt and Deficit Reduction Plans

Federal debt is a public debt which represents the federal securities owned by individuals or institutions outside the United States government and United States Treasury securities that are administered by the United States government. The United States government has to take some action to reduce the Federal debt as it is rapidly increasing. The Federal debt is represented by the Treasury of United States.

The total outstanding public debt as on 6th May 2011 is $14.32 trillion which is approximately 98% of the GDP (Gross Domestic Product) of $14.66 trillion. The rising level of federal debt may cause the fiscal crisis in the United States. Investors may not finance government if they are not compensated with very high interest rates for their money. Thus, interest rates will also rise with the debt. This problem can be solved only if the economy recovers. This recovery improves the deficit situation as people earn well. But, even if the economy recovers, the federal spending is expected to increase than revenues so the government has to continue borrowing money to spend.

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The congressional Budget Office (CBO) states that if the same situation continues for long time the deficits will remain high throughout this decade and beyond and the debt might reach 90% of the GDP in 2020 (Huntley, 2011).

Forecasting the debt is a difficult process for number of reasons. While forecasting the debt we make lot of assumptions which may not happen as expected and that might cause changes in the real debt. As per the budget which is proposed by President Barack Obama in 2010 the debt was estimated to increase up to $20 trillion by 2015 and was estimated to increase 100% of the GDP by 2020 and remain same in the next years.

Barrack Obama has given many deficit reduction plans to reduce $4 trillion in the next 12 years, among them I would like to recommend the President for tax reforms and to collect the contribution by the healthcare to reduce the deficit.

1. Deficit can be reduced by Tax reforms

The present income tax system for.....

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