Worst budget forecast, $1.2 Trillion Deficit

The Congressional Budget Office projected a $1.2 trillion federal government budget deficit for the fiscal 2009. The projected budget deficit is nearly two and a half times bigger than the previous record shortfall of $455 billion reached in 2008.

The budget office said its grim budget projection stemmed from the severe plunge of the economy, which it predicted would contract 2.2 percent in 2009 and register anemic growth in 2010. The budget would be pummeled by both falling tax revenue and rising costs for unemployment benefits, food stamps and other social programs that kick in as shock absorbers during a recession.

The agency’s deficit estimate included hundreds of billions of dollars in spending tied to risks and probable losses over time of the government’s existing bailout programs. The budget office also included all the money used in propping up Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies that the Treasury seized in September and put into a conservatorship. Those costs would add $240 billion to the deficit in 2009.

The shortfall this year could swell to $1.6 trillion if the budget estimate is combined with the huge economic stimulus package of tax cuts and new spending that Mr. Obama is preparing. Democratic leaders in Congress are more determined than ever to pass a stimulus package, which could amount to nearly $800 billion over two years, by Feb. 16.

The agency said the deficit would equivalent to 8.3 percent of gross domestic product, surpassing previous postwar record of 6 percent, reached in 1983 under President Ronald Reagan.

Credit:
Chart 1. by The New York Times
Chart 2. by The Economist