‘09 budget deficit tripled to $1.4 trillion

The federal budget deficit more than tripled to $1.4 trillion in the fiscal year that ended last month, the Treasury Department confirmed Friday.

Relative to the size of the economy, the fiscal 2009 deficit was 9.9 percent of gross domestic product, the biggest shortfall since 1945. For each dollar of revenue, the federal government spent $1.67.

“The good news is there is nothing here indicating something much worse than we expected in January,” said James R. Horney, a budget expert at the liberal Center on Budget and Policy Priorities. “The bad news is that the nation experienced the worst downturn since the Great Depression, and it will be a tough slog to get out of it.”

In January, before Barack Obama became president, the nonpartisan Congressional Budget Office estimated the 2009 deficit would total nearly $1.2 trillion.

In its midsession budget review released in late August, the Obama administration projected budget deficits of $1.5 trillion for fiscal 2010 and $1.1 trillion for fiscal 2011. For the 2010-2019 period, the White House expects cumulative deficits to exceed $9 trillion.

“The size of the federal government increased 18 percent in 2009, an historic and completely unsustainable spending rise,” said Brian Riedl, a budget analyst at the conservative Heritage Foundation. “A $1.4 trillion budget deficit was unimaginable before this year,” Mr. Riedl said. Now, he worries, it could be the standard for years to come.

The longest, deepest recession in seven decades ravaged revenues in fiscal 2009, which ended Sept. 30. Total revenues plunged by $419 billion, or 17 percent, to $2.1 trillion in 2009. Revenues as a share of GDP totaled about 15 percent, the lowest level in more than 50 years.

As unemployment soared throughout the year, rising from 6.2 percent in September 2008 to 9.8 percent last month, individual income tax revenues plummeted 20 percent. Revenue from corporate income taxes plunged more steeply, dropping 55 percent.

Meanwhile, recession-related spending soared, including the bailout of the financial system and surging payments for unemployment benefits, food stamps and health care for the poor.

Budget outlays jumped by $543 billion in fiscal 2009, surpassing $3.5 trillion. That was nearly 25 percent of GDP, the highest level in more than 50 years.

Nearly half of the increase in spending resulted from the $154 billion in costs incurred by the Troubled Asset Relief Program, which bailed out the banks and General Motors and Chrysler, and the $96 billion injected into Fannie Mae and Freddie Mac, the insolvent mortgage-financing giants now owned by the federal government.

Unemployment benefits increased from $47 billion in 2008 to $117 billion last year. Spending on food stamps jumped more than 40 percent to $55.6 billion. Federal outlays for Medicaid, the health care program for the poor, climbed 25 percent to $251 billion.

Defense spending rose 7 percent to $637 billion.

In a separate report, the Treasury Department announced that, in August, foreigners purchased $28.6 billion more in U.S. long-term assets, such as Treasury securities and corporate stocks and bonds, than they sold.

Foreign holdings of Treasury bonds and notes increased by $23.9 billion in August after rising by $31.1 billion in July and $100.5 billion in June. Foreign holdings of short-term Treasury bills fell $2.5 billion in August after rising an average of nearly $20 billion during the previous three months.

Story Continues →