CBO projects $1.2 trillion deficit for 2009

WASHINGTON – 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.

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 CBO estimate released Wednesday 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 CBO report says. The agency said that “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.”

CBO’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 St. bailout.

The agency expects the $700 billion bailout to actually cost taxpayers $189 billion, with the costs reflected in its estimates for this year and next. CBO estimates take into account the net value of the assets the government holds from financial institutions.

Under Treasury Department accounting, the bailout spending is reflected only as the government makes the payments; as of mid-December, those disbursements totaled $238 billion. Exposure to the taxpayer stemming from the Federal Reserve Board’s extensive interventions in the financial markets — such as acquiring 80 percent control of insurance and financial giant American International Group Inc. — are not reflected in the estimates.