TOPICS > Economy

Federal Deficit Projected to Hit $1.8 Trillion

March 20, 2009 at 6:00 PM EDT
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New figures released Friday by the Congressional Budget Office predict the federal budget deficit will hit $1.8 trillion in 2009, billions of dollars more than previous estimates several weeks ago. Kwame Holman reports.

JIM LEHRER: There were stark new forecasts on the federal deficit today. The Congressional Budget Office warned long-term deficits will be much worse than White House projections; that includes $1.8 trillion for this fiscal year.

The report came as President Obama campaigned to build confidence in his spending plans. NewsHour correspondent Kwame Holman has our lead story report.

KWAME HOLMAN: The president faced the new figures hours after returning to the White House from California. He tried to corral support for his economic stimulus and budget initiatives in a meeting with state legislators.

U.S. PRESIDENT BARACK OBAMA: We’re taking unprecedented steps not only to help your states make it through these difficult times, but to make sure that you come out on stronger on the other end, more prosperous than you were before.

That’s the purpose of the budget that I’m submitting to Congress. It’s a budget that makes hard choices about where to save and where to spend. Because of the massive deficit we inherited and the costs of this financial crisis, we are going through the books line by line, page by page, so that we can cut our deficit in half by the end of my first term and reduce it by $2 trillion over the next decade.

KWAME HOLMAN: The administration says that would mean a cumulative $7 trillion in deficits over 10 years. But here at the Capitol today, the Congressional Budget Office said lawmakers actually will confront an even larger number, $9.3 trillion.

In other words, deficits will equal at least 4 percent of the economy every year, a level many economists say is dangerous.

The White House budget chief, Peter Orszag, answered that those projections are too pessimistic. He said he’s confident the Obama budget will mean smaller shortfalls.

Reaction in Congress divided along party lines. Republicans blamed President Obama’s policies, while Democrats looked to the Bush years.

REP. LOUIE GOHMERT, R-Texas: On the one hand, President Obama says we’re going to cut the deficit, and on the other way, we’ve got runaway spending like never before in history. People want — I think the economy will be helped more when they see there’s responsible reined-in spending more than just throwing money after money.

REP. BOBBY SCOTT, D-Va.: Now we have institutional deficits, huge deficits. They’ve been record deficits for most of the last eight years. We need to make the tough choices. We need to get the economy under control, and it’s not going to be easy.

Obama appears on 'Tonight Show'

KWAME HOLMAN: The choices may be tougher still after the AIG bonus storm this week. It's raised questions about support for the rest of the president's agenda.

Mr. Obama addressed the issue again last night on NBC's "Tonight Show" with Jay Leno.

BARACK OBAMA: The main thing -- we're going to do everything we can to see if we can get these bonuses back. But I think the most important thing that we can do is make sure that we put in a bunch of financial regulatory mechanisms to prevent companies like an AIG holding the rest of us hostage.

KWAME HOLMAN: And there was more today on bonuses at mortgage-lending giants Fannie Mae and Freddie Mac, now under government control. House Financial Services Committee Chairman Barney frank, in a letter, asked a federal oversight agency to cancel the payouts.

But Fannie Mae Chief Executive Herbert Allison defended bonuses in a company e-mail as vital to the agency's mission.

And Federal Reserve Chairman Ben Bernanke, at a speech in Phoenix, Ariz., honed in on the bonus problem, too.

BEN BERNANKE, chairman, Federal Reserve: Supervisors must pay close attention to compensation practices that can create mismatches between the rewards and the risks borne by institutions or their managers. As the Federal Reserve and the other banking agencies have noted, poorly designed compensation policies can create perverse incentives that can ultimately jeopardize the health of a banking organization.

KWAME HOLMAN: The president may have more to say about bonuses and deficits this Sunday in his second extensive interview on CBS's "60 Minutes" since becoming president. He also plans his second White House news conference next Tuesday night.