- The Washington Times - Wednesday, January 7, 2009

The day after President-elect Barack Obama warned that “potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point,” the Congressional Budget Office projected that the budget deficit for the current fiscal year would total $1.19 trillion. That would be much more than twice the level of last year’s record budget deficit of $455 billion.

The CBO report — The Budget and Economic Outlook: Fiscal Years 2009 to 2019 — also forecast “a marked contraction in the U.S. economy in calendar year 2009, with real (inflation-adjusted) gross domestic product (GDP) falling by 2.2 percent.” CBO is also forecasting “a slow recovery in 2010.”

The $1.19 trillion deficit estimate for fiscal year 2009, which will end Sept. 30, would also represent a record-level 8.3 percent of GDP. The previous record was 6 percent of GDP in 1983.

CBO’s projected deficits for this year and next do not include the cost of Mr. Obama’s fiscal-stimulus package. The stimulus bill, which will include increased spending and tax cuts, is expected to add nearly $800 billion or more to budget deficits over a two-year budget period beginning with fiscal year 2009.

Mr. Obama will likely sign the stimulus bill in February. Thus, if $400 billion of stimulus-related tax cuts and spending increases occurs during the current fiscal year, the 2009 budget deficit would exceed $1.5 trillion. That is more than three times last year’s record shortfall.

The projected deficit for 2009 does include $180 billion from the $700 billion Trouble Asset Relief Program, which Congress passed in October. The Bush administration has been using funds from this program to inject billions of dollars of capital into the nation’s troubled banking system, which has been decimated by the bursting of the housing bubble, the resulting record-level mortgage defaults and an intensifying recession, which threatens to become the longest in post-World War II history. Many economists have projected that the unemployment rate, which reached 6.7 percent in November, could hit 9 percent by the end of the year. CBO said the unemployment rate “will exceed 9 percent early in 2010.”

Over the next five years (2009-2013), CBO’s projected baseline budget deficits would cumulatively exceed $2.9 trillion, the CBO analysis revealed. Those deficits, however, assume that federal laws and policies regarding spending and taxation remain unchanged. Clearly, with the stimulus package and other programs advocated by Mr. Obama, the deficits in future years will be much larger than the baseline projections.

After meeting with his chief economic advisers on Tuesday, Mr. Obama acknowledged the need to get budget deficits under control. “We’re going to have to stop talking about budget reform. We’re going to have to totally embrace it,” he said. “It’s an absolute necessity.”

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