CBO Projects Record $1.2 Trillion Budget Deficit for FY 2009...and That's Before Any Stimulus Action!
January 7, 2008
The Congressional Budget Office (CBO) released its latest budget projections today. The report, The Budget and Economic Outlook: Fiscal Years 2009 to 2019 (PDF), provides a sobering perspective of the impact of the economic recession and financial crisis on the nation's finances.
The report estimates that the deficit for fiscal year 2009, which ends this September 30, will reach nearly $1.2 trillion. And, importantly, CBO's estimates do not reflect the impact of forthcoming budget legislation including the new President's stimulus package, which media reports say will add around $800 billion to deficits over the next two years, and anticipated additional funding for the wars in Iraq and Afghanistan.
| CBO's January 2009 Baseline Budget Projections (In billions of dollars) |
|||||
| Actual 2008 |
2009 |
2010 |
Total: 2010-2014 |
Total: 2010-2019 |
|
| Revenues | 2,524 | 2,357 | 2,533 | 15,380 | 35,991 |
| Outlays | 2,978 | 3,543 | 3,236 | 17,351 | 39,126 |
| Deficits | -455 | -1,186 | -703 | -1,972 | -3,135 |
| Debt held by the public | 5,803 | 7,193 | 7,829 | n.a. | n.a. |
SOURCE: Congressional Budget Office, January 2009.
CBO projects that 2009 revenues will fall to 16.5 percent of gross domestic product (GDP) - except for 2003 and 2004, a level not seen since 1959 - while spending rises to almost 25 percent of GDP, creating a budget deficit of more than 8 percent of GDP. Both the spending and deficit amounts will be post-World War II highs.
CBO estimates the Treasury will borrow almost $1.4 trillion from the public in FY 2009, which will raise debt held by the public to $7.2 trillion - more than 50 percent of GDP. The total public debt, including debt held in government accounts, would reach $11.5 trillion.
About $240 billion of the projected deficit in 2009 can be attributed to one-time costs associated with the federal government's takeover of the two housing finance agencies, Fannie Mae and Freddie Mac. Another $184 billion represents the estimated cost of the federal government's activities related to the Troubled Asset Relief Program (TARP).
CBO notes that the ongoing turmoil in financial markets makes it even more difficult to project the budget's future. In addition, its estimates do not reflect the economic and budgetary impact of actions that the new President and Congress might take to stimulate the economy. Although the budget outlook is expected to improve somewhat in 2010, the estimated deficit will still exceed $700 billion, or nearly 5 percent of GDP, and the economy is expected to remain in difficulty. CBO projects that the unemployment rate will continue to rise over the next year to more than 9 percent in early 2010 and that average house price will continue to fall by 14 percent between late summer 2008 and mid-2010.
Although CBO's 10-year outlook reflects smaller annual deficits, CBO notes that "...once the nation gets past this downturn, it will still face significant fiscal challenges posed by rising health care costs and the aging of the population. Continued large deficits and the resulting increases in federal debt over time would probably constrain long-term economic growth by reducing national savings and investment, which in turn would cause productivity and wage growth to gradually slow."
