WASHINGTON (AP) - The federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year, according to grim new Congressional Budget Office figures.
The CBO estimate released Wednesday also sees the economy shrinking by 2.2 percent this year and recovering only slightly in 2010, and 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 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 that Obama is expected to propose soon to try to jolt the economy. At the same time, they do not reflect the full cost of the Wall St. bailout.
The shrinking economy has led to a sharp drop in estimated tax revenues of $166 billion, which is largely responsible for the deficit, along with big outlays from the Wall St. bailout. The agency expects the bailout to cost $180 billion this year after taking into account the net value of the assets the government holds from financial institutions.
Obama and Congress are promising quick enactment of the economic recovery plan, which will blend up to $300 billion in tax cuts with big new spending programs and could cost up to $775 billion over the next few years.
The flood of red ink probably won't affect that measure but could crimp other items on Obama's agenda.
"Despite the record deficits facing us, our number one task is an economic recovery package," said House Budget Committee Chairman John Spratt Jr., D-S.C. "With Americans concerned about their jobs, their homes, their retirement, and their children's' future, our economic situation is so severe that stabilizing the economy must take precedence over short-term deficits."
The $1.19 trillion 2009 figure shatters the previous record of $455 billion, set only last year. It also represents more than 8 percent of the size of the economy, which is higher than the deficits of the 1980s. The 2009 budget year began last Oct. 1.
Senate GOP Leader Mitch McConnell of Kentucky called the budget figures "a stunning and sobering reminder that Congress must strengthen its efforts to be good stewards of the taxpayers' money."
CBO predicts the deficit will come under relative control within a few years, but such predictions depend on the expiration of President Bush's tax cuts at the end of next year and repayments from financial institutions that received bailout funds.
While expected, the deficit numbers will give lawmakers second thoughts about creating new spending programs without finding ways to pay for them. And it is likely to prompt a debate about whether tax increases are necessary after the economy recovers from the current recession.
On Tuesday, Obama issued his most serious remarks yet about the danger of big budget deficits and promised his administration will take steps to bring the tide of red ink under control.
"I'm going to be willing to make some very difficult choices in how we get a handle on this deficit," Obama said Tuesday.
Economists warn that large and sustained budget deficits put upward pressure on interest rates. In the short term, however, efforts to restrain the deficit could have a contracting effect on the economy.
(Copyright 2009 by The Associated Press. All Rights Reserved.)