What are the main issues regarding the federal budget at this time?
When an economy is in recession, tax revenues fall along with employment, whcih means the government has less to spend. At the same time, there are some very expensive programs the government is on the hook to pay for, including Social Security, Medicare and the Defense budget, not to mention the deployments in Iraq and Afghanistan, so in trying to cut back what government spends, there is not much to choose from and all of the cuts would hurt significant numbers of Americans.
In Congress Republicans have mostly taken a pledge not to raise taxes under any circumstances. This means no compromise deal with Democrats was possible. Balancing the budget through spending cuts alone also is not possible. Now, without an agreement from Congress, very painful automatic cuts will take place at the end of the year that, most likely, no one wants.