White House Predicts $1.6 Trillion Dollar Deficit for 2009

After a record number of cash-infusions to the banking industry, a $700 billion dollar stimulus packages, and an unprecedented $3 trillion dollar Federal Budget, the consequences are finally coming home to roost. Today, the Congressional Budget Office (CBO) and the Whitehouse reported that they expect the United States to have a $1.6 trillion dollar deficit for 2009, the highest deficit relatively to the size of the economy since World War 2.

The gap between the amount of federal spending and tax revenue will represent 11.2.% of the overall economy. This will nearly triple the size of last year’s federal budget deficit, which was $459 billion. This increase is directly related to the increased federal spending and the sharp drop in tax collections as the result of the recession. Individuals and businesses are making much less than they were a year ago, which means they are also paying far fewer taxes.

The news isn’t all bad though. The Federal budget deficit is actually slightly smaller than originals had originally expected. The primary reason for this decrease is reduced spending on bailouts. The Troubled Asset Relief Program (TARP) was expected to cost $200 billion dollars, but will only cost $133 billion this year, according to the Congressional Budget Office.

The White House and the Congressional Budget Office agreed that the recession will end within the next few months. The Whitehouse Predicts that the US economy will shrink by about 2.8% this year and grow by 2.0% in 2010 and by 3.8% in 2001. They also predict that unemployment will average about 9.8% this year.

Although the recession is coming to an end, deficits will continue for years to come. Most estimates predict that the annual budget deficit will be more than $800 billion through 2019. The Whitehouse predicts that the annual budget gap between spending and revenue will be $917 billion in 2019. Over the next decade, the Whitehouse expects that national debt will grow by an additional $9 trillion to a total of $23 trillion, or approximately 76.5% of the GDP, which will be the highest it has been since 1950.