New Projections Show $1.8T Deficit for 2009

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WASHINGTON -- Imagine earning $50,000 a year and spending $100,000. That's a lot of money owed to somebody.

Now imagine the government spending $3.6 trillion and borrowing nearly half of it. Again, big debt to pay.

That's what the Office of Management and Budget is predicting.

OMB Director Peter Orszag announced Monday that a $90 billion increase in the estimated deficit for each of the next two years would bring the deficit for fiscal year 2009 to $1.8 trillion and for 2010 to $1.3 trillion. President Obama's proposed budget for 2010 is $3.6 trillion. The 2009 budget was set at $3.1 trillion.

Those numbers are up from February's estimates. The budget deficits will be 12.9 percent and 8.5 percent of gross domestic product in those two years, Orszag said. The budget deficit for fiscal year 2009, which ends Sept. 30, is four times the record set last year.

Orszag said the increases are "driven in large part by the economic crisis inherited by this administration."

The cause for these record deficits? Deep recession, Wall Street bailout, economic stimulus bill and lower than expected tax revenues.

The bright side? The actual 2009 deficit could end up to be $250 billion less than predicted because Congress is unlikely to provide another $250 billion in financial bailout money.

Annual deficits would never dip below $500 billion and would total $7.1 trillion over 2010-2019. Even those dismal figures rely on economic projections that are significantly more optimistic than those forecast by private sector economists and the Congressional Budget Office. They rely on a 1.2 percent decline in GDP this year and a 3.2 percent growth rate for 2010.

Congressional Republicans noted almost immediately that the newest figures foresee the deficit growing by $89 billion more than what was predicted three months ago. They note that's five times the amount the administration proposed saving last week by cutting out $17 billion in 100 programs that Orszag said Monday "don't work or whose costs are excessive."

For the most part, Obama's updated budget tracks the 134-page outline he submitted to lawmakers in February. His budget proposes higher taxes for the wealthy, a hotly contested effort to combat global warming and the first steps toward universal health care coverage.

Obama's Democratic allies controlling Congress have already made it clear that they will reject key elements of his plan. Apparently dead is a plan to raise $267 billion over the next decade to pay for his health care initiative by curbing the ability of wealthier people to reduce their tax bills through deductions for mortgage interest, charitable contributions and state and local taxes.

And the congressional budget plan approved last month would not extend Obama's signature $400 tax credit for most workers -- $800 for couples -- after it expires at the end of next year.

Obama's remarkably controversial "cap-and-trade" proposal to curb heat-trapping greenhouse gas emissions is also reeling from opposition from Capitol Hill Democrats from coal-producing regions and states with concentrations of heavy industry. Under cap-and-trade, the government would auction permits to emit heat-trapping gases, with the costs being passed on to consumers via higher gasoline and electric bills.

Among the new proposals is a plan -- already on its way through Congress -- that would increase the Federal Deposit Insurance Corporation's borrowing authority from $30 billion to $100 billion in order to grant a two-year reprieve from higher deposit insurance premiums while the industry is struggling.

Also new are several tax "loophole" closures and increased IRS tax compliance efforts to raise $58 billion over the next decade to help finance Obama's health care measure. The money makes up for revenue losses stemming from lower-than-hoped estimates of his proposal to limit wealthier people's ability to maximize their itemized deductions.

The updated budget also would repeal an unintended tax windfall taken by paper companies that use a byproduct in the paper-making process as fuel to power their mills. The tax credits were never intended for paper companies, but now they could be worth more than $3 billion a year, according to a congressional estimate.

The budget would make permanent the expanded $2,500 tax credit for college expenses that was provided for two years in the just-passed economic stimulus bill. It also would renew most of the Bush tax cuts enacted in 2001 and 2003, and would permanently update the alternative minimum tax so that it would hit fewer middle- to upper-income taxpayers.

The Associated Press contributed to this report.