CBO expects deficit to triple to $1.2 trillionNewsday
THE ASSOCIATED PRESS
January 8, 2009
The federal budget deficit will nearly triple to an unprecedented $1.2 trillion for the 2009 budget year, according to grim new Congressional Budget Office figures released yesterday.
The eye-popping estimates reflect plummeting tax revenues because of the recession and about $400 billion spent to bail out the financial industry and take over Fannie Mae and Freddie Mac.
Last year's deficit was $455 billion.
The budget office estimate also sees the economy shrinking by 2.2 percent this year and recovering only slightly to grow by 1.5 percent in 2010. It foresees the unemployment rate eclipsing 9 percent early next year unless the Obama administration steps in.
"The recession - which began about a year ago - will last well into 2009," the report says. The agency said "ongoing turmoil in the housing and financial markets has taken a major toll on the federal budget."
The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come." The Congressional Budget Office's figures don't account for the huge economic stimulus bill Obama is expected to propose soon to try to jolt the economy.
The shrinking economy has led to a sharp drop in estimated tax revenues of $166 billion from 2008 levels, which is largely responsible for the deficit, along with big outlays from the Wall Street bailout.
The agency expects the $700-billion bailout to actually cost taxpayers $189 billion, with the costs reflected in its estimates for 2009 and 2010.
The budget office report also said the federal takeover of Fannie Mae and Freddie Mac last year added $240 billion to this year's deficit.
Obama and Congress are promising quick enactment of the economic recovery plan, which will blend up to $300 billion in tax cuts with big new spending programs and could cost up to $775 billion in the next few years.
"Despite the record deficits facing us, our No. 1 task is an economic recovery package," said House Budget Committee Chairman John Spratt Jr. (D-S.C.) "With Americans concerned about their jobs, their homes, their retirement and their children's future, our economic situation is so severe that stabilizing the economy must take precedence over short-term deficits."'